The world market is now looking closely at India for signs of a strong pickup in demand. Higher investments in power generation as envisaged in the recent Budget 2015-16 are seen as positive signals for an uptick in demand. Although for the present Indian consumption is way below that of China’s, in the next couple of years, demand growth is set to gather pace with policy emphasis and higher outlay for power generation and infrastructure sector. Copper is an essential industrial metal used worldwide with in construction and because of its electrical properties. Copper prices are widely followed in the commodity sector and are followed in financial markets around the globe. Copper mined in open mines around the world, with Chile and the United States leading in overall copper production. The demand for copper is increasing on account underlying growth in countries such as China and India even while the supply remains tight. The growing demand and constrained supply is likely to keep copper prices volatile in the near future.
The supply side of copper continues to be robust and the global market expected to spend the calendar year 2015 as a year of surplus supplies. The development in the mining sector has been significant. Adding support to the price is the closure of World’s third largest copper mine in Indonesia owing to labour disputes. The recent torrential rains and power outage in parts of Chile have disrupted mining operations in the Atacama Desert region which is home to over half of Chile’s copper mines and accounts for close to two-third of national production. Chile accounts for close to 6 million MT of mined copper output annually, which is nearly a third of the global output. Disruption to communication lines has exacerbated the situation. According to experts, one week’s disruption would mean loss of 70,000 MT output.
Apart from details of Chile and Indonesia, global mine production is estimated to have increased by around 1.3 per cent (233,000 MT) to 18.3 million MT in 2014 compared with that in 2013. Concentrate production has increased by 1 per cent to 125,000 MT while concentrate by solvent extraction electro-winning process increased by 2.8 per cent to 108,000 MT. In 2014 production remained essentially unchanged in Chile and in Peru - the 1st and 3rd world biggest copper mine producers - and it declined by 26 per cent in Indonesia, where production through August remained constrained by the ban on concentrates exports; by 7 per cent in Zambia owing to an operational failure at the Lumwana mine and lower production at other mines; by 3 per cent in Australia owing to the temporary closure of two mines and by 28 per cent in Papua New Guinea, where the Tedi mine was constrained by a landslide and heavy rains. However, production increased by 8 per cent in the United States, 8 per cent in the Democratic Republic of Congo (DRC), 7 per cent in Mexico, 10 per cent in Canada, 8 per cent in Brazil and 34 per cent in Mongolia.
China is crucial to the whole picture and accounts for about 45 per cent of global demand for copper. The metal’s wide ranges of uses for wiring, piping and in general industry make it essential for developing economies, where focus continues on infrastructure growth. Although China is still growing faster than industrialized nations such as Britain and US, its growth is nevertheless slowing and fears of a hard landing remain. Growth last year is expected to have been less than 7.5 per cent, missing Beijing’s target for the first time since 1998. In spite of missing the growth target the demand for copper is not likely to shrink by major quantum, as the scale of operation in China is too huge compared to other demanding countries. China still continues to import copper from world market, though with reduced aggression and this is one of the major reasons that China continues to be the centre points of all global activity concerning copper.
China’s copper imports in February tumbled by the most in four years. China’s imports of scrap copper, the feedstock for one-third of the country’s production of the metal, are unlikely to rebound from a 10-year low as U.S. supplies remain tight. Industries that provide the bulk of recycled material in the U.S., the biggest exporter of scrap metal to China, have not yet recovered sufficiently to improve supply. Scrap copper imports by the country, which accounts for about half the world’s copper consumption, fell to the least since 2004 last year as the economy expanded at the slowest pace since 1990. Scrap metal is the feed-stock for about one third of China’s copper production.
China's economy is growing at its slowest pace in 24 years in 2014 as property prices have cooled and companies and local governments are struggling under heavy debt burdens, keeping pressure on Beijing to take aggressive steps to avoid a sharper downturn. End-users in China, the world's top consumer and producer of refined copper, typically increase purchases around the second quarter to support higher production as the summer approaches in anticipation of some aggressive support from the government.
A weaker U.S. currency makes dollar-denominated assets such as metals cheaper for buyers holding other currencies. The sentiments were also boosted on back of the expectations that China would continue with the initiative of building infrastructure, thereby increasing its demand for copper. The other supporting news in the market is the activity in China's factory sector that has dipped to 11 month low in March 2015, is signalling persistent weakness in the world's second-largest economy. This is ringing more alarming bells for its Central Bank to come up with yet another stimulus programme, which is supportive for the industrial metals, especially copper. Away from China, the U.S. recovery has been gathering pace, with the country likely to want more red metal and the fresh stimulus announced by the ECB is turning out to be an aid of the last resort for the Eurozone economies.
As reported in the above text the refined copper market is likely to have supply surplus for the whole of 2015 as the mini-boom in the copper mining industry continues. LME inventories remain at their lowest levels, but we shouldn’t pay attention to this since inventories have been falling with prices since their peak in mid-2013. Copper’s plunge mirrors losses across commodities as a decade-long bull market led companies to boost production and the Federal Reserve debates when to raise interest rates. Because copper lacks strong fundamentals, we wouldn’t expect copper to make significant moves upward but at the same time a significant plunge in the prices from current levels is not expected. Amidst growing uncertainties the copper market is trying to find new equilibrium in between the lows. In spite of the slowdown is Chinese economy, it is likely to consume 4.9 per cent more copper than last year. We feel that as the crude oil (WTI) stabilises in the range of USD 55-65 per barrel in couple of months’ time, the copper would find its next equilibrium and the tend to move northward from there. Thus, we feel that the uptrend in copper would start towards end of 2nd quarter of 2015.
