Despite Volatility, Copper Still Headed for Supply Surplus

Given the apparent weakness in demand, and some recovery in underperforming mine supply, the resilience of copper prices is surprising many industry players. Copper had traded close to US$7,500/t from mid-year with exchange stocks remaining within sight of 450 kt, but prices have recently broken out upwards from this three-month limbo. This month, exchange stocks have fallen marginally (around 20 kt), while copper prices moved sharply upwards to over US$8,300/t, before retreating slightly.

IntierraRMG’s recently-released BME Copper Quarterly Report affirms that copper prices are still susceptible to increase due to total liquid stocks remaining low. Within liquid stocks, the report includes merchant bonded stocks and excess pipeline inventory as well as exchange stocks. According to calculations, liquid stocks now stand at around 2.6 weeks of consumption. This is a historical low point. When prices were at their most recent peak in Q3 2011, the estimated liquid stocks were at 2.9 weeks of consumption.

IntierraRMG’s Director of Base Metals, Paul Dewison states; “We expect to see a sustained period of price volatility. But, while copper’s future landscape is clearly changing quickly, we remain sure that in longer term, the copper market is still headed for surplus. Because of this, we continue to forecast a trend fall in prices, albeit potentially a choppy one.”

With recent attention also being focused on mine output trends, the Copper Quarterly Report highlights the current status of copper’s ballooning mine project list, with a detailed project listing. The inevitable surge in new mine supply is the result of sustained high pricing and repeated under-performance by copper’s mega-mines. However, with the emergence of a more sombre market tone, the anticipated market surplus from 2013 has major suppliers reassessing their position.

Mr. Dewison concludes: “Erosion in confidence that demand for copper in China and elsewhere will continue to expand rapidly, plus the more widely-held view that copper may indeed be headed for large surpluses, is coupled with a general squeeze on margins. This has led to a major re-think amongst some copper producers as to whether or not the market really justifies large capital outlays.”

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Based on IntierraRMG information