After a decade during which large copper companies have struggled to follow a demand driven by Chinese consumption, new projects are finally coming to life. Unfortunately, this increase in supply meets a slowdown in demand.
Benchmark three-month copper was down more than 2 percent at $6,909.50 a tonne from $7,088 at the close on Thursday. It hit a 1-1/2 year low of $6,800 during the last session, and is on track for its biggest weekly fall since late 2011.
A selloff in gold futures, which posted a record two-day slide earlier this week, has percolated into the copper market, traders and analysts said. Copper is often traded as part of a wider commodities basket such as an index-linked fund, and investors wishing to limit losses on one component of the basket must sell the entire group.
After a year in 2012 during which the demand for copper was flat in China, the current restocking should give some life back to the market. According to Chinese Customs, copper imports fell 29% to 967,000 tonnes in the first three months of 2013 compared to the first quarter of 2012. This reduction in Chinese purchases is one of the main reasons for the stocks increase in LME warehouses which are at their highest level in a decade: +92% to 614,350 tons this year. Imports of copper waste is also at a low level. Production will exceed demand by 341,000 metric tons this year, more than last year’s 238,000 tons, according to Citigroup Inc.
Expectations of demand growth for China range between 5% and 8%, and between 3% and 6% worldwide, significantly higher than the previous year forecasts. Consumption is expected to rise by 2% to 3% in the United States. In Europe, demand has plateaued in the south, but at a low level, and is moderately growing in Germany and Scandinavia. Many stakeholders are concerned that copper will suffer the same phenomenon of stocks growth that occurred for aluminum. The metal reduced availability then caused an increase in premiums for delivery which partially counterbalanced the decline in prices. An early sign could be the fear of copper supply disruption due to the metal stockpile in some warehouses,
“The market remains nervous and likely to react quickly to any further negative macro data or news,” brokerage Sucden said in a research note. A stronger U.S. dollar against a basket of other units also weighed on metals, making the dollar-priced commodity more expensive for holders of other currencies.
On the supply side, production of copper concentrate at the world’s biggest copper mine, the BHP majority-owned Escondida mine in Chile, rose 61 percent in the nine months to March 31 and was on track to increase by at least 20 percent in 2012/13.