20140616-Metal_Prospects_Copper_Market_Outlook_–_Third_Quarter_2014_24页_873kb

2014 Third Quarter Copper Market Outlook Summary

Core Content Overview

This document provides a comprehensive outlook on the global copper market for the period from 2014 to 2018, analyzing supply and demand dynamics, price forecasts, and key risks affecting the market.

Demand Forecast

• Global Copper Demand Growth:
  • 2014: 5.7%
  • 2015: 5.7%
  • 2016: 5.6%
  • 2017: 4.0% (trend growth)
  • 2018: 4.0% (trend growth)
• Key Risk: A 1% decrease in global demand could reduce the growth rate to 4.6% and increase the surplus by over 228,000 tonnes.
• China's Role:
  • Chinese consumption growth in the first two months of 2014 was 17.0%, but the actual growth is expected to be slower than reported.
  • Slower demand growth in China due to the Qingdao port scandal and commodity financing contraction could push the market into a bigger surplus in 2014 and 2015.

Supply Forecast

• Refined Production Growth:
  • 2014: 9.1%
  • 2015: 6.1%
  • 2016: 4.3%
  • 2017: 0.8%
  • 2018: 0.7%
• Mine Supply Constraints:
  • A slowdown in mine supply growth is expected in 2016, which will push the market back into deficit.
  • In 2017 and 2018, a significant shortage of concentrates will limit metal supply growth, leading to a large deficit.
• Net Supply Increase by 2018:
  • A net increase of 4.0 million tonnes in supply is forecasted, driven by existing operations and approved projects.
  • New potential projects could add 0.9 million tonnes by 2018, but only 25% (228,000 tonnes) are expected to come on stream under the base case.

Market Balance and Inventories

• Inventory Trends:
  • The copper market was in deficit in the first five months of 2014, with total reported inventories down 105,000 tonnes.
  • A slight surplus is expected in 2014 and 2015, but this could be reversed due to strong demand and limited scrap supply.
  • By 2017 and 2018, inventories are expected to drop significantly below the critical level, supporting higher prices.
• Critical Inventory Level:
  • The critical level of inventories has declined to 4.5 weeks of consumption from 6.0 weeks in the early 1980s.
  • Total reported inventories in 2014 are at 6.0 weeks of consumption, down from 6.5 weeks at the beginning of the year.

Price Forecasts

• Average Copper Prices (US$/lb):
  • 2014E: $3.15
  • 2015E: $3.00
  • 2016E: $3.25
  • 2017E: $3.75
  • 2018E: $4.00
• Fundamental Cost Support:
  • The fundamental cost support for primary production is $2.38/lb.
• Long-Term Price Forecast:
  • $2.75/lb in 2014 US dollars.

Risks to Forecast

• Economic Growth:
  • Weak global economic growth could lead to a larger surplus in 2014 and 2015.
• China's Impact:
  • The Qingdao port scandal may cause a supply shock or a reduction in commodity financing, impacting price forecasts.
• Supply Disruptions:
  • Higher levels of production disruptions or an extended Indonesian export ban could limit supply below forecast levels.
  • Liquidation of Chinese inventory held as collateral due to the Qingdao port scandal could cause a supply shock.

Key Highlights

• The market is expected to transition from deficit to surplus and back to deficit over the forecast period.
• Strong demand growth and a shortage of scrap will support prices above fundamental cost levels.
• Inventory levels are a key determinant of price, with a significant drop expected in 2017 and 2018.
• Physical premia in Europe and the US are driven by tight physical markets and liquidity issues in exchange inventories.

Summary of Key Exhibits

• Exhibit 1: Refined copper supply and demand balance from 2008 to 2018.
• Exhibit 2: Global refined copper supply/demand data.
• Exhibit 3: Supply/demand and price trends.
• Exhibit 4: Summary of production changes at existing operations and approved projects.
• Exhibit 5: Production increases at existing operations and approved projects.
• Exhibit 6: Potential new projects contributing to supply.
• Exhibit 7: Production reductions at existing operations.
• Exhibit 8–11: Copper mine and refined production trends.
• Exhibit 12–15: Copper consumption and economic growth data.
• Exhibit 16: Physical copper premia.
• Exhibit 17–22: Inventory levels and price relationship analysis.