What is of concern is the wave of new supply from mines that is expected in the next two years. Chile, with six of the world’s top-10 copper mines, is by far the world’s largest copper ore supplier.
Following periods of significant investment many of these projects are being completed. All of this new capacity coming online will likely create sustained surplus for the copper market until at least 2015.
There is a real possibility that the market surplus in both 2013 and 2014 could be even greater than analysts believe. If this becomes the theme that characterises the copper market in the next few years, it will end the supply-side underperformance that has dominated copper pricing for the past decade.
This additional supply will add to global inventories that are already at their highest levels for close to 10 years. Even if the Chinese economy reaccelerated, it is difficult to envisage a scenario where global copper consumption is strong enough to absorb this excess supply.
The final bearish factor that can be added to the mix is that production cutbacks seem unlikely in the medium term because most copper producers are profitable at current prices.
Until copper prices fall to a level that forces production cutbacks, the situation is unlikely to resolve itself.
Joe Murphy is metals analyst at Hermes Commodities
INDUSTRIAL METALS - THE OULOOK
Martin Arnold, director of research at ETF Securities, claims that fears of a ‘hard landing’ in China have been overdone.
“Most industrial metals prices have experienced double-digit losses in 2013, as concerns about a Chinese economic slowdown weighed on the outlook for demand early in the year.
“China’s recent robust economic numbers highlight its voracious appetite for raw materials, which will continue to provide support for industrial metal prices. Recent data indicates that Chinese producers have bought industrials opportunistically, taking advantage of low prices to rebuild stockpiles.
“US and European industrial growth is also improving. While the outlook for the industrial metals sector is strongly tied to the improving global economic outlook, individual metals have significantly different fundamentals.
“Copper and lead are likely to be the outperformers in the near term, while nickel and aluminium are likely to be the laggards.”
