Metals Commentary: ICSG predicts modest copper surplus

— The International Copper Study Group (ICSG) held the 32nd regular meeting of its statistical committee in Lisbon, Portugal, in early October. The forum featured government delegates and industry advisers from all areas of the copper industry who established a collective forecast for the copper industry for 2008-09. The following is a summary of the study group’s findings.

According to ICSG projections, a modest copper surplus of about 100,000 tonnes is anticipated for 2008. The calculated deficit for the first half of 2008, at about 125,000 tonnes, is expected to be overshadowed by a 235,000-tonne surplus in the second half, owing to seasonally weaker second-half consumption and a downturn in global markets.

Although supply continues to be constrained, demand in the three leading consuming regions — China, the European Union-15 countries (EU-15), and the United States — continues to weaken. Preliminary projections for 2009 indicate a surplus of around 275,000 tonnes (1.5% of copper use). In calculating global copper usage, China’s share is based on its apparent consumption using reported data (production plus net trade, plus or minus stock changes on the Shanghai Futures Exchange) and does not take into account changes in unreported stocks (State Reserve Bureau, producer, consumer and merchant), which may be significant during periods of stocking or de-stocking. However, newly released data on Chinese copper stocks for 2007 has been incorporated into 2007 apparent consumption calculations, resulting in a downward revision to apparent usage and an upward revision to the ICSG world market balance for 2007, which now shows a surplus of around 295,000 tonnes.

ICSG recognizes that the current crisis in the financial and credit sectors may significantly alter current forecasts.

Not only may global demand be reduced by a global economic downturn, but also credit constraints and altered feasibility analyses could reduce or delay expected new production. Therefore, we are cautious as to the uncertain net impact of production and usage constraints on forward-looking market balances.

World copper mine production this year is expected to rise by only 1.8% to 15.7 million tonnes, an increase of around 280,000 tonnes over 2007. Solvent extraction-electrowinning (SX-EW) production accounts for 95% of the growth. Lower head grades, technical production problems, utility constraints, and labour unrest resulted in a lower capacity utilization rate. In 2009, mine production is expected to increase by 1.7 million tonnes copper, or 10.7%, to 17.4 million tonnes owing to new mine developments and increased capacity utilization. For both years, higher growth rates are expected for SX-EW production than for concentrate production.

World production of refined copper (adjusted for both feed shortages and production disruptions) is projected to reach 18.4 million tonnes in 2008, an increase of about 345,000 tonnes or 1.9% compared with last year. Refined production in 2009 is projected to rise by 4.3% to 19.2 million tonnes, an increase of almost 800,000 tonnes compared with this year.

Electrolytic refinery production increases in Asia, and SX-EW production growth in Africa and the Americas, are expected to account for most of the growth. A shortage of concentrates in 2008 and 2009 is expected to restrain the growth of refined production.

World refined copper use climbed by 4.1% in 2007 to 17.7 million tonnes, driven by China, where net imports of refined copper rose by 144% and revised apparent use grew by 27%. World usage outside of China decreased by around 1.9% with usage in the other three major markets decreasing by around 3.5%.

In 2008, significantly lower growth in apparent refined copper use in China, and a decrease in use in the EU-15, Japan, and the U. S., are expected to result in a lower world usage growth of around 3%. In 2009, consumption is expected to remain weak in these countries and world copper use is expected to grow by 3.4% to 18.9 million tonnes. In both years, world growth is expected to be mainly supported by India, Egypt and the Gulf countries.

For 2010, the expected growth in production is expected to surpass the growth in use and a larger market surplus is anticipated.