JOHANNESBURG (miningweekly.com) – The copper market continues to fight strong downward pressure from increased supply, a weaker demand growth outlook and fears of metal previously tied up in financing coming back to the market, setting the scene for further price weakness, an updated report by Thomson Reuters GFMS has revealed.

An update to the 2014 edition of the Thomson Reuters GFMS Copper Survey, released on Wednesday, found that the price of the metal was approaching marginal production cost levels of around $6 000/t, remaining below the incentive price for the metal, which it estimated at around $7 450/t.

London Metals Exchange (LME) three-month prices had traded at between $6 321/t and $7 460/t from the beginning of the year to early October, with a slow downward trajectory punctuated by temporary market shocks, including Chinese financing probes and China’s State Reserves Bureau purchases.

“More recently, a series of weaker economic data, falling Chinese refined copper imports and a stronger dollar have also weighed on prices,” the report read.

CHINESE CREDIT HARDENING
In the Chinese market, consumption was still expected to increase by 490 000 t, or 5.5%, in 2014, representing “considerable” growth in light of the State Grid Corporation of China’s underspend and a weakening in housing starts.

“The primary risk to the copper sector appears to come from a hardening in the government’s attitude towards credit in China. While this prudence will ultimately be beneficial in reducing the investment bubbles and overheated sectors that have been a feature for many years, it could cause a temporary slowdown in offtake,” Thomson Reuters GFMS cautioned.

This as Chinese government policy appeared centred around microstimulus and on shoring up State-owned enterprises rather than the previous broad-based injections of liquidity into the economy.

“With this in mind, the direction of the copper market will, in our view, be driven increasingly by supply-side events and, on this front, considerable near-term growth is expected.

“Looking towards the next six months, we calculate that more than one-million tons of new copper capacity, or around 6% of global mine production, will come on stream,” said the report.

HEALTHY DEMAND UPTICK
Meanwhile, in the first six months of 2014, global copper demand grew at an almost identical pace to the average in 2013, but at a faster rate than a year earlier.

This “healthy” increase of nearly 500 000 t was split more diversely across the globe than a year ago and was, according to the report, chiefly owing to the deceleration in Chinese growth, which was offset by the improvement in the performance of the mature economies.

Consequently, the increase in Chinese demand accounted for 53% of global growth, down from 92%.

“While we take some comfort from the improving picture in demand in the US and strong first-half numbers in European offtake, headwinds are picking up.

“New figures for August reported big drops in Germany’s industrial production and export figures, which puts the current weak recovery in Europe at risk of falling back into outright recession. Consumption in Japan, meanwhile, is likely to feel the full effects of April’s rise in consumption tax,” it stated.

Moreover, as China’s economy slowed and commodity prices fell, the knock-on effects to emerging markets would also likely be negative for world growth.

“In addition, China’s slowing property sector and the resurgent dollar adds further resistance to any price recovery,” the report outlined.

The GFMS team at Thomson Reuters expected an average LME three-month copper price of $6 500/t in the fourth quarter of the year, declining to a yearly average of $6 200/t for 2015.