Analysts see quiet copper market in 2014

VANCOUVER — Increasing mine supply, limited demand and concentrate stockpiles in China have analysts predicting a subdued year for copper in 2014.

When talking copper, there are three categories to consider. The first is mine production: How much copper are the world’s mines pumping out? According to the International Copper Study Group (ICSG) — a meeting of government delegates and industry advisors from the world’s top copper-producing and using countries — output is on the upswing.

Global mine production totalled 16.7 million tonnes in 2012 and is expected to reach 17.8 million tonnes in 2013, and 19.2 million tonnes in 2014. The ICSG attributes the upswing to the fact that “mine projects that were deferred or delayed during the financial crisis are expected to start coming on stream.”

Most of those tonnes, however, describe copper in concentrate, which means copper that is unrefined and not yet ready for use. That’s why the second number to consider in assessing the copper market is: How much refined or ready-to-use copper did the world produce?

According to the ICSG, in 2012 global refined copper output came in at 20.1 million tonnes, while this year it is expected to total 20.9 million tonnes. Primary mine output drives refined copper production, but refining of secondary sources — recycled copper, refinery slags and the like — adds to the total, which means refined copper production is usually higher than mine production.

In 2014 refined copper output will reach 22.1 million tonnes, bolstered by restored production at existing plants where operations had been curtailed, and by expanded capacity at electrolytic plants in China.

Production information is great, but meaningless without comparison to demand. As such, the third number needed to understand the copper market is: How much refined copper did the world consume?

According to the ICSG, global refined-copper use hasn’t changed much over the last 24 months: 2012 demand totalled 20.55 million tonnes, while 2013 demand will add up to 20.53 million tonnes. Demand is expected to rise slightly in 2014, reaching 21.43 million tonnes.

The numbers show that refined copper production is expected to exceed demand by 390,000 tonnes, or 1.8% of production this year, increasing to 632,000 tonnes, or 2.8% of production in 2014.

Prices generally fall when supply outpaces demand, and indeed that is the outlook. Year to date the price of copper has fallen 12% to average US$3.33 per lb., and forecasts for 2014 are generally lower.

Eight analysts surveyed in BNamericas’ Outlook 2014 Mining generated a 2014 consensus estimate of US$3.28 per lb. Similarly, the state copper commission in Chile, Cochilco, recently published a survey of 16 experts, which concluded the copper price would average US$3.14 per lb. in 2014. Chile is the world’s largest copper producer.

The previous Cochilco survey, published six months earlier, predicted a 2014 average price of US$3.43. The group lowered its price forecast based on expectations for lower economic growth in China and several project ramp-ups. The gradual tapering of monetary stimulus in the U.S. is also expected to push copper prices downwards.

Of course, every analyst and forecasting group couches its predictions with the uncertainties that could render any or all of its forecasts wrong. The ICSG, for example, cites “numerous factors, including a world-economic slowdown, European Union sovereign debt issues, political transitions in the Middle East and North Africa, and production shortfalls due to labour unrest, utility and capital shortages, and technical factors.”

One of the biggest such uncertainties is the extent of China’s copper-concentrate stockpiles. China accounts for 40% of world copper demand, but it can be hard to know exactly how much copper that means. The challenge is that concentrate stockpiles are unreported, and it seems Chinese smelters are building unusually large concentrate stockpiles right now.

Reports out of the country suggest operating smelters have two months of concentrate stockpiled, rather than the usual three to four weeks. A wave of new smelters starting up this year are also stocking up on concentrate.

It is impossible to get an accurate tally of copper-concentrate stockpiles in China, but the bottom line is that copper bulls pinning their hopes for a copper-price recovery in China may be disappointed if the Asian giant indeed has already stockpiled enough to meet rising demand.