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Citing rising production and softer demand growth, Thomson Reuters GFMS forecasts a copper market surplus of 399 000 t this year, following on last year’s 316 000 t oversupply, as stronger contributions from ramp-up operations make a positive impact and new mines boost global volumes.
The group forecast copper mine output to rise by more than 3% this year to some 19-million tonnes, from an estimated 18.3-million tonnes last year, while refined output also looked set for another year of fairly strong growth, despite some constraints on secondary supply.
Sufficient concentrate stock levels and higher treatment and refining charges as smelters sought to maximise their revenue underpinned a forecast 3% rise this year, versus the 5% increase last year.
Thomson Reuters GFMS added that it did not expect a pick-up in prices until the latter half of the year.
“Wild cards remain and include supply-side surprises, with producers perhaps cutting back from planned targets, while China’s State stockpiler could be active again in the current year.
“We are forecasting an average copper price for the year of $5 975/t – a 12% drop from the previous year,” read the Thomson Reuters GFMS Copper Survey 2015.
According to the firm, London Metal Exchange inventories, although still low, had been on the rise after falling almost 200 000 t last year, while Shanghai Futures Exchange stocks were also generally climbing, with the rise in visible inventories playing to arguments for further price weakness.
“Of course, it would be hasty to assume that the early signs of inventory build are a simple expression of the copper market’s weakening fundamentals. First, there is a seasonal element to stock building; second, expectations of lower prices are influencing buyer activity.
“Lastly, the effects of last year’s Qingdao port scandal mean that, as stocks for financing reduce, more metal flows into exchange warehouses. That said, while we remain cautious of the risks, our central view is that the market’s oversupplied position is likely to become increasingly apparent in the coming months as demand growth disappoints and supply rises,” it stated.
On the demand side, prospects remained gloomy, as the full effects of the earlier slowdown in Chinese construction fed into lower copper demand. Chinese copper demand was expected to rise by 4% this year, down from 6% last year.
The report forecast global copper demand to increase by 3% this year, approaching 22.2-million tonnes.
Elsewhere, demand in the US remained a “bright spot”, while the recently announced infrastructure projects in India underpinned the report’s outlook for better demand in this region.
The risk of mine closures was meanwhile limited, as industry average net cash costs declined intra-year by 11%.
It cautioned, however, that, over the longer term, prospects arguably looked disconcerting for supply growth.
“We calculate the incentive price for new production at $7 703/t and, with spot prices below these levels for the last two years, project deferrals, mothballing and rescoping should hold back future growth levels in mine supply, ensuring that today’s feast turns to famine,” it held.