Small oversupply foreseen for global copper market

The global copper market, which experienced exceptional years in 1988 and 1989, is poised to move into marginal oversupply during the next two years, says an international securities firm. Shearson Lehman Hutton, in its Annual Review of the World Copper Industry 1990, bases its projections on a supply-demand balance analysis. Market stocks, it says, should stay relatively low by historical standards.

For 1990, an average price of around US$1.15 per lb. is predicted. (All prices are in U.S. currency.) For 1991, 95 cents is forecast.

On the London Metal Exchange in 1989, the cash price of copper averaged $1.29. In 1988, it averaged $1.18, and the year before that, 81 cents. During the 5-year period 1982-86, copper averaged 65.8 cents.

High levels of demand spurred the price of the base metal toward the end of the last decade. “Supply has risen sharply since 1986 but, particularly in recent years, primary production has failed to fulfil its potential due to major mine production disruptions, and delays in the timing of capacity additions and new projects,” write the Shearson analysts.

The company feels there is a greater probability of prices exceeding its forecast than falling below it. Stocks are low, supplies could be disrupted and consumption could be greater than expected. “The most likely factor for prices to touch our low estimate is a downturn in general economic activity, rather than factors specific to the copper market,” writes Shearson.

Consumption of copper in the non-communist world rose in 1989 to an all-time high, 8.54 million tonnes, 3% higher than in 1988. Contributing to the upswing were strong global economic growth and the capital spending boom during 1987-89.

Copper consumption should benefit from growth in the developing nations. Shearson says that as a group, the developing countries are increasing their share of total consumption; that share rose from 11% in 1979 to 17.8% in 1989.

For 1990, a small growth in consumption of 0.9% is projected. For 1991, a 2.4% growth in consumption is forecast.

Copper mine production in the non-communist world in 1989 totalled an estimated 7.15 million tonnes, up by 6.6% from 1988 (one tonne yields about 2,204 lb.) Primary refined output grew by an estimated 4.2% to 6.99 million tonnes. It is estimated the concentrate market was in rough balance last year.

At the end of 1989, Shearson estimated world effective mine and SX-EW (solvent extraction and electrowinning) production capacity stood at 8.9 million tonnes per year. A capacity increase of 90,000 tonnes per year is forecast for 1990, and 199,000 tonnes for 1991.

Mine and SX-EW production is forecast to grow by 1.1% in 1990 to 7.38 million tonnes, and by a further 2.6% in 1991. (The figures are based on the troubled Bougainville project in Papua New Guinea not reopening until at least the end of 1991.) Larger capacity increases are foreseen beyond 1991.

Shearson says its figures point to a 140,000-tonne stock buildup in 1990 and a 90,000-tonne rise in 1991. “By the standards of the early 1980s, these are relatively modest stock additions. Commercial stocks would remain less than five weeks of consumption at the end of 1991, compared with peak levels of over 12 weeks in 1982 and 1983,” says the securities firm.