GFMS: Copper market undersupplied through to 2013

The following are the principal conclusions of the November edition of GFMS’ quarterly Three-Year Copper Forecast report, available at www.gfms.co.uk.

The report suggests that the noteworthy deficits the market has seen recently will push the overall market balance for this year into negative territory. The positive backdrop for the red metal is expected to be briefly disturbed by an economic slowdown in the first half of 2011, for which GFMS forecasts a brief return to a modest surplus. Thereafter, the consultancy projects deficit conditions to reemerge in the second half of 2011 and for these to remain in place over the following two years, as supply struggles to keep up with consumption.

These conclusions have been reached in spite of projections for healthy additions to production over the period. Given the high price environment, GFMS expects miners will boost output, where this is possible, and supply from secondary sources will continue to expand. The report notes that this will be partly offset by persistent structural constraints to mine supply growth, such as political and operational risk, falling grades at major operations and labour disputes. Overall, refined production is expected to grow by an average 3.4% per year over 2011-13.

Elsewhere, allowances have been made for renewed substitution pressures on consumption, expected to emerge as prices continue to move upwards, particularly in the second half of 2011-13. Despite this fact, healthy additions to annual consumption are projected, fuelled primarily by growth in emerging markets. Focusing on China, GFMS forecasts demand growth will slow compared to recent years, reflecting an ever rising base and a move towards maturity. Nevertheless, averaging 6% per year, copper consumption growth in the country is expected to remain strong and to account for a little less than two-thirds of the global rise in annual consumption over 2010-13.

Compounding tight supply-demand conditions, the report suggests that ongoing interest by investors will continue to boost copper prices through a series of all-time highs and a peak above US$11,000 per tonne by 2013. GFMS argues that the metal’s bullish fundamentals coupled with a growing commodity investor base will result in further capital inflows into the red metal over much of the foreseeable future.