Commodity Briefing Service - Copper
Surprise Chinese growth lifts copper price

This article is an extract of the monthly Commodity Briefing Service for Copper which examines global copper market trends over the past month.

By Julie Tilley | 21 July 2017


The boost given to prices in early June by supply disruptions was as brief-lived as the disruptions themselves. This month, a combination of potential supply disruptions, more positive sentiment surrounding demand and a falling U.S. dollar saw three-month copper on the London Metal Exchange reach an 18-week high of US$6,023/t on July 17.

Although S&P Global Market Intelligence is more sanguine towards medium-term Chinese demand, we believe that shorter-term positive sentiment will provide some market support. We have raised our forecast for LME cash prices in the third quarter to US$5,839/t, up from our previous forecast of US$5,374/t.
With second quarter prices averaging US$5,668/t, just 1.0% lower than our forecast of US$5,724/t, this takes our forecast for 2017 full-year prices to US$5,730/t, compared with our previous forecast of US$5,628/t. Our fourth-quarter price forecast remains virtually unchanged at US$5,574 due to a more negative outlook for Chinese demand in the last quarter of the year, when we expect the refined copper market surplus to increase. One of the key sentiment boosts recently was better-than-expected Q2 Chinese GDP data, at 6.9% year over year.




We expect the Chinese government to continue to pursue measures to rein-in credit growth and cool the country's burgeoning real estate market, which is likely to put a dampener on copper demand growth. As a result, we have dropped our forecast for Chinese 2017 copper demand growth to 2.8% year over year, down from our previous forecast of 3.5% year over year.

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On the supply side, we have lowered our 2017 global mine output growth forecast to 1.2% year over year, taking mined supply output to 20.1 Mt, down from 1.8% previously. The risk to this forecast is very much to the downside, with several extant potential disruptions to mine production.

Labor actions continue to threaten production — workers at Antofagasta Plc's Zaldivar mine in Chile have voted to strike, but government-mediated talks will continue until July 20 in an attempt to reach an agreement, as the company did with its Centinela Oxide mine's union. In Canada, workers at Teck Resources Ltd.'s Highland Valley copper mine in British Columbia held a strike vote over the weekend, with management looking for concessions — workers have been without a contract for almost a year. At Grasberg, 6,000 workers have voted to extend their strike into a third month, and issues persist between the Indonesian government and Freeport-McMoRan Inc. regarding mining rights at the mine.

More unforeseeable issues are also affecting production. The Alumbrera mine in Argentina — owned by Glencore Plc (50.0%), Goldcorp Inc. (37.5%) and Yamana Gold Inc. (12.5%) — may be forced to suspend operations due to environmental concerns. Sources also report that a fire at the Tenke Fungurume mine in the Democratic Republic of Congo could affect production. Meanwhile, wildfires in the Cariboo region of Canada have halted production at the Gibraltar mine.

Looking further ahead, our forecast for a refined market deficit in 2018 has deepened, to an 89,000 tonne shortfall, from 40,000 tonnes previously. This is due to lower refined output forecasts for 2017 and 2018. As such, our price forecast has also been raised slightly for next year, to US$5,902/t, up from a previous forecast of US$5,875/t.



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