Cuts in copper mine output are raising doubts about the extent of a widely expected global surplus that has driven down prices, and the reduced production could support a market rebound.
An expected glut of supply in 2015 is one reason – along with tanking oil prices – why investors have been selling the metal in droves in the past six months, pulling prices to their lowest level in 5-1/2 years, Reuters reported.
But several mining companies have cut their expected 2015 copper production, mainly for geological or technical reasons – and only now are new forecasts emerging from analysts downgrading global output this year.
Some have gone so far as to wipe out the surplus altogether and pencil in a deficit.
“The market is not going to be as over-supplied as we had originally thought after several announcements on cutbacks,” said Vivienne Lloyd, base metals analyst at Macquarie. “We expect the market to be quite balanced this year.”
Concerns about economic growth in China, which accounts for 40 percent of global copper consumption, has also weighed on prices for the metal – often seen as a bellwether for economic health because of its use in industries from construction to consumer goods.
However some economists say any pick-up in the Chinese property sector this year could boost demand for copper and further eat into a global surplus.
Trim Production
Analysts polled by Reuters in October had expected the global surplus to shoot up to 350,000 tons this year from a forecast 94,300 tons in 2014.
Since then, Rio Tinto has trimmed expected 2015 output at its Kennecott US operation by about 100,000 tons and BHP Billiton has cut around 150,000 tons from forecast production at Escondida in Chile, the world’s largest copper mine, said Citi analyst David Wilson.
Glencore has reduced its forecast for output at its Alumbrera mine in Argentina by 50,000 tons, Wilson said in a note.
Repeat of Last Year
Analysts are now looking much more critically at the numbers.
Macquarie now predicts supply will outweigh demand in 2015 by 98,000 tons, slashing its projection by more than 300,000 tons since October following mine output forecast cuts.
This year may see a repeat of 2014 when analysts had to scale back their forecasts of mine supply growth, said Citi’s Wilson. “Should a similar pull back in projections occur this year, and mine supply growth is limited to around 3 percent, the prospect for the copper market moving into surplus is remote in our view.”
Caroline Bain, senior commodities economist at consultancy Capital Economics has forecast a 2015 deficit of 30,000 tons.
“Having followed everybody else (in previous years) with producer projections initially, and then having to revise down, we thought this year we’re going to start by being pessimistic and hopefully it will come right,” she said.
