Copper production surplus expected for2014-15: ICSG

The following copper market forecast for 2014 and 2015 was released by the Lisbon-based International Copper Study Group (ICSG). For more information on the ICSG, visit www.icsg.org.

 According to preliminary ICSG data, the world apparent refined copper balance in 2013 showed a production shortfall relative to demand of 280,000 tonnes, mainly due to constrained growth in refined production and growth in China’s apparent demand. Although Chinese net imports were lower in 2013, refined production was higher. Anecdotal evidence suggests that unreported inventories held in bonded warehouses in China declined during 2013. Accounting for the unreported inventory decline — estimated to total 260,000 tonnes — the ICSG calculated market deficit would increase to 540,000 tonnes.

According to ICSG projections for 2014, after four straight years of apparent deficits, the copper market could show a production surplus relative to demand. World production of refined copper could exceed demand for refined copper by 400,000 tonnes, as demand will lag behind the growth in production. For 2015, although growth in usage is anticipated to continue, another surplus could occur owing to an increase in refined output that exceeds the expected growth in usage.

In developing its projections, ICSG recognized that the global market balances could vary from those projected owing to numerous factors that could reduce or enhance projections for both production and usage.

After a period of underperformance, world mine production grew by 8% in 2013 compared to an average annual growth of 1.5% in the five years before. Although growth in 2013 was partly due to a recovery in production levels from constrained output in 2012, strong growth could continue through 2015 owing to more output from mine projects that were deferred during the financial crisis, and are expected to come on-stream. After adjusting by historical disruption factors, world mine production could  grow by 5% in 2014 and 7% in 2015 to 18.9 million tonnes and 20.3 million tonnes. Most of the new production is expected to be in the form of copper in concentrate.

In 2014, world refined copper production could increase by 6.5% to 22.4 million tonnes compared with that in 2013. Refined production will benefit from adequate availability of concentrate (and to a lesser extent from expanded solvent extraction and electrowinning capacity in Africa) offsetting expected tightness in the scrap market. In 2015, refined copper production is expected to grow 4.3% to 23.3 million tonnes.

ICSG expects world apparent refined demand in 2014 to grow by 3% from that in 2013 to 22 million tonnes. Apparent demand in China is expected to increase by 5% in 2014. Usage in the rest of the world is expected to increase by 2%. With better prospects for the world economy in 2015, world usage could continue its growth, with world ex-China growth increasing to 2.5% and Chinese growth at 5%.

— In developing its global market balance, ICSG uses an apparent demand calculation for China, the leading global copper consumer, accounting for 40% of world demand. Apparent copper demand for China is based only on reported data and does not take into account changes in unreported stocks, which may be significant during periods of stocking or destocking and which could significantly alter supply–demand balances.

Historically, ICSG has only accounted for reported stock data in its statistics. In recent years anecdotal evidence has suggested that Chinese bonded stock levels have fluctuated, while apparent consumption based on trade, production and changes in exchange inventories may not adequately reflect industrial use in a given time period. ICSG acknowledges the distortion that these unreported stock movements can cause in the calculation of the world refined copper balance and has included in its world summary table an additional line item: “Refined world balance adjusted for Chinese bonded stock changes.” Since there is no officially reported data for Chinese bonded stocks, ICSG uses an average of stock estimates provided by three consultants — based on their ongoing research and analysis of the Chinese copper market — to estimate the unreported inventory changes.