After four consecutive years of apparent deficit, the world copper market could witness a production surplus relative to demand in 2014, according to projections made by International Copper Study Group (ICSG).

Demand this year is expected to lag production. So, world production of refined copper is expected to exceed demand for refined by about 400,000 tonnes.

Interestingly, another surplus year could occur in 2015. Although growth in usage is expected to continue, owing to an increase in refined output that exceeds the expected growth in usage, a surplus is likely again. The ICSG has however cautioned that the global market balances could vary from these projections owing to numerous factors that could reduce or enhance projections for both production and usage.

Mine output

While world mine production is anticipated to grow by about 5 per cent in 2014 and by 7 per cent in the following year to 18.9 million tonnes (mt) and 20.3 mt respectively, most of the new production is expected to be in the form of copper in concentrate, ICSG said adding that refined production will benefit from adequate availability of concentrate, offsetting expected tightness in the scrap market.

In 2014, world refined copper production is expected to increase by 6.5 per cent to 22.4 mt and in 2015 grow further to 23.3 mt (by 4.3 per cent). ICSG expects world apparent refined demand in 2014 to grow by about 3 per cent to 22 mt. With better prospects for the world economy in 2015, world usage may continue to grow. Chinese demand growth will be around 5 per cent this year and the next.

Copper prices were battered last month; and by the end of March, LME cash prices fell below the psychological level of $7,000/t to around $6,500/t, some 11 per cent down from the start of the year. The price fall was triggered by anticipated weakness in Chinese consumption demand.

While the struggling construction market is seen bearish for copper, China’s State Grid has announced a huge 14 per cent increase in investment for 2014. Anecdotal reports suggest the sentiment is beginning to improve, even though Chinese copper demand has slowed but surely from a high base. Additionally, as end-users are reported to be holding low raw material inventory, physical buying could accelerate if industrial activity normalises.