Oversupply and low demand keep copper down

Economic outlooks for the US and China add to uncertainty in commodities market

THERE is a downside risk for the copper price in an oversupplied market and sluggish demand, metals consultancy Thomson Reuters GFMS said yesterday

SA is not a major copper producer, with the US Geological Survey estimating its output at about 100,000 tons a year. However, Anglo American, a major company on the JSE, is a copper producer with assets in Chile, the world’s largest source of copper.

Chile expects to produce nearly 5.6-million tons of copper this year, up 3% from last year — Chile is the source of about a third of the world’s mined copper.

The copper price fell almost 10% last year and it has trimmed off another 5% since the start of this year, said Sanjay Saraf, head of base metals research and forecasts at GFMS.

High copper inventories held by the Chinese and economic uncertainty in the eurozone, particularly since the banking crisis stemming from the Cyprus debt situation, are keeping a lid on copper prices, he said in the GFMS Copper Survey 2013.

“This, together with ongoing caution regarding the economic outlooks for both the US and China, has helped to keep sentiment in the copper (and broader commodities) market on the back foot,” he said.

GFMS estimates prices “could spend much of the year within their recent broad trading range, growing negative market sentiment weights risk to the downside, with around $6,500 as a potential level of support if selling intensifies”. Copper is attempting to recover more broadly from eight-month lows of $7,331.25 a ton last week.

“We expect copper prices to average $7,500 for the second quarter,” said analyst Matthew Fusarelli at Sydney-based consultancy AME. “We expect a surplus of 300,000 tons this year. We don’t expect prices to return to where they were at the start of the year,” he said.

Copper prices on the London Metal Exchange reached a peak above $8,300/ton in early February, but that was down by nearly a fifth from a record high of more than $10,000/ton in 2011.

Unionised workers at Chilean state miner Codelco began a 24hour work stoppage yesterday at all units of the world’s top copper miner to demand greater job security and safety improvements, labour leaders said. But workers at private mines, including BHP Billiton, Anglo American and Antofagasta Minerals, only partially went along with the call for a strike, even though the union representing them initially said it would join the labour action.

“All our operations are working normally. Only in one of them was the access of the administrative shift delayed, but this has not impacted production. This is also back to normal now,” an Anglo spokesman said yesterday

GFMS said global copper consumption rose less than 1% last year to 19.845-million tons as Chinese expansion slowed, halving to 4%.

The global copper market was in a surplus of 214,000 tons last year. With Reuters