Copper could see above-trend production increases in 2012, Bank of America Merrill Lynch asserts in a Jan. 24 report on base metals. The bank’s global commodity research team forecasts a more balanced market by 2013, “which could remain a critical feature until 2015, when structural tightness could come back again.”
The report predicts a 46% decline to 219,000 tonnes of the market deficit for refined copper.
The authors expect that almost all of the large output increase through 2012 will come from major miners, and in particular from Anglo American’s (AAUKY-Q) brownfield Los Bronces site, which it says is expected to boost supply by 220,000 tonnes. “We see the possibility of above-trend production increases at a few sizeable mines owned by majors in 2012 and 2013,” they argue.
For a long time, a buoyant copper price has been the consensus position, influenced by strong demand growth from China. “Steady increases in offtake were met by insufficient mine supply additions, which was exacerbated by production disruptions,” the report says. “As a result, copper prices now include a scarcity premium and trade well above average historic quotations. We think that this scarcity premium helped destroy demand, but it also incentivized miners to invest in capacity.”
The conclusion is that the scope for more mine supply to come on stream over the next two years means there is less justification for the scarcity premium going forward.
“Although we continue to see structurally tight copper markets longer term, these production additions could lead to a somewhat softer fundamental picture, particularly in the years 2013 and 2014.”
Bank of America Merrill Lynch estimates the average copper price in 2012 will be US$3.52 per lb., or US$7,750 per tonne. It could fall in 2013 to US$3.32 per lb. (US$7,313 per tonne) and to US$2.95 per lb. (US$6,500 per tonne) in 2014, before rising to US$2.97 per lb. (US$6,538 per tonne) in 2015.
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