WITH the copper market expected to post a moderate surplus this year, copper prices are expected to remain under pressure. In its fifth edition of GFMS Copper Survey, Thomson Reuters says the annual average price is expected to fall below $7000/tonne for the first time since 2009, with a test of the $6000/tonne level likely during the second half of the year.
EW cells loaded with anodes at Central Asia Metals’ Kounrad Copper Project in Kazakhstan.
This year’s study notes how copper prices continued to exhibit a downside bias in 2013 as a sharp acceleration in global mine supply and uncertainties over the global economic recovery dented the metal’s near-term prospects. More recently, concerns over underlying Chinese demand and the sustainability of the copper financing trade have imparted further downward pressure, with copper crashing to a near-four year low in mid-March 2014.
Thomson Reuters’ GFMS team senior base metals analyst Rob Smith noted that “whilst many commodities markets have been on the back foot of late, the copper market has been particularly susceptible to weakness given its heightened exposure to the Chinese market, through both traditional end-use demand as well as finance-related routes. With the risks to the copper market skewed to the downside, against a backdrop of rising mine supply and modest market surpluses, prices are likely to remain subdued over the rest of this year.”
The copper market is in the midst of a period of strong supply growth as miners begin to deliver on investments made during the boom years. Thomson Reuters estimates that global mine production grew 8% last year to 17.8 million tonnes, with Chile and the Democratic Republic of Congo making standout contributions. In fact, mine production increased across all regions, boosted by higher productivity at major mines, ramp-ups and commissioning of new projects and expansions.
Looking ahead, it says mine output is set for a period of above trend growth that will lead the copper market into surplus over the medium term, although it should be acknowledged that rising capital costs, easing prices and a shift in mindset amongst mining companies towards one of constraint could lay the foundations for renewed tightness later in the decade.
The growth in refined output was more lacklustre, rising a comparatively modest 3% to 20.7 million tonnes. This reflected a number of dynamics, including technical problems at some smelters processing material from new mines, logistical issues and stockpiling of concentrates in remote locations. Maintenance shutdowns at key smelters and limited scrap availability were also key contributory factors.
Global copper consumption, meanwhile, posted an impressive performance last year, rising 4%. This was a noteworthy improvement on the largely flat performance of 2012 and represented the fastest pace of expansion since 2010. A rapid acceleration in Chinese demand growth, to 9% in 2013 from 4% in 2012, was a key driver of the gain, while an improvement in the mature economies also added a degree of support to the global total.