In Commodity News 16/04/2015
Rising production and softer demand growth should see the copper market register a 399,000 mt surplus this year, up from a surplus of 316,000 mt in 2014, Thomson Reuters GFMS said Wednesday.
“We do not expect a pick-up in prices of note until the latter half of 2015,” GFMS said in its Copper Survey 2015, though it added: “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.”
GFMS is forecasting an average copper price for 2015 of $5,975/mt, a 12% drop from the previous year. Three-months copper closed London Metal Exchange floor trade at $5,950/mt on Tuesday.
Copper prices “continue to be pulled by the standoff between the bulls and the bears, which essentially represent opposing positions on what the inventory surge tells us and how long it will run,” GFMS said.
STOCKS BUILD
LME inventories, though still low, have been on the rise after falling almost 200,000 mt last year, while Shanghai Futures Exchange stocks are also generally climbing, it noted, adding: “The rise in visible inventories is playing to all the bear arguments for further price weakness.”
LME copper stocks currently stand at 337,250 mt, up from 177,025 mt at the start of the year.
But GFMS cautioned against assuming that the stock build is 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,” GFMS said.
That said, it added, “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.”
SUPPLY GROWTH
GFMS is forecasting copper mine output to rise by more than 3% this year to close to 19.0 million mt, from an estimated 18.3 million mt in 2014, with refined output also looking set for another year of “fairly strong” growth, despite some constraints on secondary supply.
The risk of mine closures “looks to be limited,” GFMS said, noting: “Industry average net cash costs declined intra-year by 11% while the 90th percentile, measured at $4,763/mt, still gives the industry some space for further price decline.”
In the longer term, however, “prospects arguably look disconcerting for supply growth,” GFMS said.
“We calculate the incentive price for new production at $7,703/mt, and with spot prices below these levels for the last two years, project deferrals, mothballing and re-scoping should hold back future growth levels in mine supply, ensuring that today’s feast turns to famine,” the company said.
On the demand side, GFMS forecasts an increase of 3% in 2015 to approach 22.2 million mt. Demand growth in China is set to slow, however, to 4% this year from 6% in 2014.
Elsewhere, demand in the US “remains a bright spot,” while the recently announced infrastructure projects in India underpin the outlook for better demand in this region, GFMS said.
“In Europe and Japan, while their share of global copper usage continues to decline, it remains to be seen the extent to which these economies will be able to react to the unveiled quantitative easing programs and sharply weaker exchange rates,” it added.
