Despite the Federal Reserve’s decision last week to start ending its massive bond-buying stimulus, a major support for commodity prices for years, copper has held up quite well amid signs that the U.S. economy is on stronger footing.
Copper stole the show today, with the March contract rising 6 cents, or 1.8%, to settle at $3.37 a pound. The copper contract appeared to surge as high as $3.45 at 11:49 a.m. Eastern, but a CME Group spokesman said that an “error trade” had occurred at that time. The exchange was adjusting any trades that took place above $3.42 at that time downward to $3.42, the spokesman said.
Production is expected to increase in 2014, but leave the market in only a modest supply surplus with demand that most analysts forecast to hold up although not be spectacular. Against this backdrop, most said they look for copper to remain largely range-bound next year.
For much of 2013, copper has been fighting an uphill battle, with lack of demand and oversupply keeping prices well below 2011′s record highs. Now, with the new year on the horizon, investors may have high hopes for the red metal; however, those anticipating big moves — in either direction — might want to think again. It looks 2014 will be a lot of the same for copper.
In its most recent survey, PwC said it expects that in 2014 copper will fall victim to many of the same issues that plagued it during 2013: demand and supply imbalances. That being said, producers are bracing themselves for another challenging year as inventories climb and the global economy tries to stabilize.
After three years of relatively stagnant production, mine production in 2013 is expected to have increased by 6.5% from that in 2012. Strong growth will continue in 2014 and 2015 as mine projects that were deferred or delayed during the financial crisis are expected to start coming onstream. Expansions and project start-ups during 2013 and 2014 will increase world mine production to around 18.6 Mt (million tonnes) in 2014 from 16.7 Mt in 2012. Most of the new production should be copper in concentrate, with only limited electrowinning expansion.
Bank of America Merrill Lynch, in its 2014 commodities outlook, said it was “neutral” on copper. This bank said it sees supplies growing, but global demand excluding No. 1 consumer China will offset some of an expected growth slowdown in China itself.
Copper fundamentals have not continued to deteriorate as in the first half of the year, says Stephen Briggs, analyst at BNP Paribas. Copper inventories accumulated in LME warehouses decreased by nearly 40% in six months, a Citi study confirms. In China, stocks fell sharply this year. The French bank which expected a small surplus in the market in 2013 is now estimating that the refined metal market will be almost balanced. The reduced availability of copper wastes boosted the consumption of refined metal.
Stephen Briggs, however, expects a modest surplus in 2014-2015 due to new capacity. The demand growth is expected to have been back above 5% in 2013, driven by a 12% increase in Chinese consumption. In 2014, the demand growth outside China is expected to accelerate, taking advantage of global growth. Scrap supply should continue to decrease due to decline in copper prices. At that level, there is a tendency for scrap supply to dry up. This should be temporary because scrap copper keeps accumulating. Consumption will rebalance with a Chinese demand decelerating to 7%, while the rest of the world grows around 3.5%, enough to keep an overall growth of 5%.