JOHANNESBURG (miningweekly.com) – Research group BMI has increased its 2017 copper price forecast from $4 900/t to $5 150/t, as ongoing Chinese fiscal spending has bolstered the Asian nation’s demand growth outlook.

BMI therefore expects copper prices to gradually improve over a multiyear horizon, as steady demand growth and decelerating supply growth look to drive the market into a deficit by 2019.

Copper prices will trade in a considerably higher range over the next three months than in 2015 and 2016. This follows the sharp rally in early November 2016, driven by Chinese speculative trading and pre-emptive expectations of US President-elect Donald Trump's infrastructure investment plan.

“We expect copper prices to shed some of the gains acquired over the beginning of December, as the Chinese government reins in speculative trading through increasing margins and fees, as well as uncertainty around Trump's plan persists,” BMI said in a statement released Monday.

Nevertheless, BMI expects prices to remain  supported and to trade within the $5 000/t to $6 000/t range, as the copper market will remain tighter than in recent years owing to ongoing Chinese fiscal spending.

High frequency data confirms BMI’s view that speculation, rather than significantly improved fundamentals, is driving the rally in copper prices.

The research firm maintains its view, however, that prices will average higher year-on-year in 2017, driven by the pickup in Chinese demand, which is being fuelled by the country’s ongoing support for its construction industry.

Meanwhile, global refined copper demand will begin to keep up with production over the coming quarters, again as a result of Chinese fiscal spending boosting the country’s consumption growth.

“We forecast the global refined copper balance to fall to a surplus of only 282 000 t in 2017 from 404 000 t in  2016.”

Beyond 2017, the copper balance will gradually move into a deficit by 2019. As such, the global stocks-to-use ratio will decline slightly from 5.2% in 2017 to 4.5% by 2020.