章節 15 May 11th: Copper's Anticipated Supply Surplus Is Proving Elusive
The global copper market is facing another year of supply deficit, according to the International Copper Study Group (ICSG).
The Group's April forecast is for a supply shortfall of 114,000 tonnes this year after a 431,000-tonne deficit in 2022.
When the ICSG statistical committee last met in October, it expected a shift to surplus this year to the tune of 155,000 tonnes. That market turnaround is now only seen materialising next year.
The calculated difference between small deficit and small surplus is a marginal one in the context of a 26-million-tonne global market but the change of view captures two key strands in the current copper narrative.
Usage, particularly in China, appears to be growing faster than previously forecast, while mine supply is yet again failing to live up to expectations.
Green Booster
The ICSG's expectations for another year of copper shortfall are in part due to "better expectations for Chinese usage as compared to the Group's previous forecast," it said in its April 28 update.
China's "apparent usage" of refined copper is now forecast to grow by 1.2% this year and by 2.6% in 2024.
The calculation could easily be thrown off, since it is based on changes in visible inventory combined with China's net imports of refined metal.
Net imports were surprisingly robust last year at 3.6 million tonnes, up 8.7% on 2021 and the second highest annual total after 2020, when a record 4.5 million tonnes were imported.
Last year's elevated net imports served to inflate China's apparent usage. A 16.4% slump in net imports over the first quarter of this year will do the reverse.
However, the ICSG notes that "underlying real Chinese demand growth estimated by consultants varies between 2.5% to 2.9% for both" 2023 and 2024.
Usage growth in the rest of the world, meanwhile, is expected to accelerate from last year's weak 0.4% pace to 1.6% this year, surpassing pre-COVID levels, according to the ICSG.
These look optimistic forecasts, given palpable weakness in China's giant manufacturing sector, recessionary fears in Europe and a banking crisis in the United States.
But the ICSG contends that despite the "challenging" macro-economic backdrop, "manufacturing activity is expected to continue rising in most of the key copper end-use sectors".
The global race to electrify is boosting copper usage in electric vehicles and the grid infrastructure needed to support them, subtly changing Doctor Copper's traditional price relationship with the global industrial cycle.
Mine Surge Much Reduced
At the time of the ICSG's last meeting in October, it was expecting global mine production to surge by 3.9% in 2022 and by 5.3% this year.
It now thinks growth was actually 3.0% last year and has slashed its forecast to 3.0% again this year.
Only two major copper mines were brought on stream between 2017 and 2021 but four big supply additions have been ramping up simultaneously.
The Kamoa Kakula mine in the Congo and the Quellaveco mine in Peru are greenfield projects, while the Quebrada Blanca II and Spence-SGO mines in Chile are boosting output as they switch from oxide to sulphide ores.
However, the expected wave of new supply is being offset by multiple hits to existing operations.
The ICSG cites as reason for its lowered mine growth expectations "operational and geotechnical issues, equipment failure, adverse weather, landslides, revised company guidance in a few countries and community actions in Peru".
The Group and every other copper analyst includes a supply disruption offset in their mine supply forecasts but the past six months have been particularly problematic even by copper's historical standards of mine under-performance.
The net effect is a smoothing of the supply wave over the forecast period with mine growth expected to slow to 2.5% in 2024 as current ramp-ups are completed and any new additions arrive late in the year, according to the ICSG.
Disputed Narrative
Copper's current narrative is a hotly disputed topic.
In the bull corner is Goldman Sachs, which thinks there is "now no new mine supply wave this year" and is warning of a "stockout episode" as inventory is drawn to critical levels to plug the supply gap.
The investment bank continues to target a 25% upside move in the price this year with a 12-month forecast of $11,000 per tonne, compared with copper's current price of $8,500. ("Copper: priced for scarcity", May 1, 2023).
Citi is in the bear camp. "A copper stock out is extremely unlikely in 2023 in our view," was the bank's May 3 response. It cited weak global demand, high finished goods inventories and improving supply and has downgraded its price forecast for the next three months from $8,500 to $8,000 per tonne.
London Metal Exchange three-month copper has been locked in an $8,400-9,200 range since February, uncertain how to balance out Chinese recovery and Western slowdown, weakness in old industrial sectors and strength in new energy transition sectors.
The market is finely poised between bull and bear signals and the ICSG's latest forecasts suggest that also reflects a more balanced supply-demand dynamic over the next two years than previously anticipated.
Source: Reuters
