Commodity Outlook: Copper

In Feburary of this year, copper prices were steady at about US$3.70/lb with underlying support primarily driven by demand from continued Chinese government expenditure on construction and infrastructure projects. Overall copper demand is expected to increase 3.6 percent in 2013 and 4.3 percent in 2014.

This paints a rosy picture to support the considerable investment in new and existing project expansion. But only if it were that easy – We are seeing the investment pipeline putting considerable pressure on labor costs and contractor availability. Added to this, the new mine and expansion projects place an additional burden on supporting infrastructure including electricity and water availability putting further upward pressure on these input costs and attracting a higher social, community and environmental cost.

2013 will be an interesting year where the market balance is expected to shift towards excess of supply. Those expansion projects that are burdened with these additional labor, contractor and infrastructure issues will feel further pain as with the overall supply growth, pricing is expected to face downward pressure.

Commodity outlook

Q4 of 2012

During 4Q12, average copper prices increased 2 percent q-o-q to US$3.56/lb from its 3Q12 average of US$3.50/lb underpinned by the support offered by positive indicators from the central banks in the US, Europe and Japan. This price appreciation of copper has also partly been driven by increased demand coming from China, US and South Korea which have been the main demand centers during 2012. However, over 2012 as a whole, the copper prices reduced 10 percent year-on-year to average around US$3.60/lb from its 2011 levels of US$4.00/lb.

Chinese copper consumption

China is expected to continue as the main demand driver globally. Announcements from China that it intends to accelerate infrastructure projects worth US$157 billion in 2012 along with ongoing monetary easing is expected to help drive improvements in its copper demand.

Apparent  consumption of copper in China is expected to increase by 5 percent in 2013 driven mostly by higher demand coming from its building and construction industry. However, this growth rate would be lower than 8 percent growth rate that was seen in the country in 2012; anticipating destocking of copper inventories that China would have built in 2012. Nevertheless, China is expected to remain by far the biggest consumer of Copper.

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2013 forecast

The US market is expected to grow modestly in 2013 driven by demand from the country’s automotive sector and ongoing recovery in the domestic housing market. Although the Japanese government has been taking measures to boost the country’s economy, Economist Intelligence Unit expects the steps to fall short of reviving the economy from the impact of 2011 earthquake. Besides, with continued weak exports in the semi-conductors and electronic-parts during 2012, the Japanese copper markets are expected to continue their struggle in 2013. Elsewhere in Asia, higher demand is expected from South Korea and India. The Middle East is emerging as an increasingly important region for growth driven largely by the infrastructure development in the region. Demand from the EU is expected to remain subdued in 2013, but is expected to grow modestly in the longer run by 2014.

From 2013, increase in production is expected to outpace the increase in demand for copper leading to an accumulation of global copper stocks. As per market balance estimates, global copper stocks are expected turn positive by 2013 and onwards on account of supply exceeding the copper demand. This market surplus for copper is expected to drive global copper prices down from 2014 onwards.

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Keep an eye out for more on Copper and mining in Africa…

David Okwara

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