Copper prices to continue to fall over next 18 to 24 months: consultant

Palm Beach Gardens, Florida (Platts)--12Nov2014/309 pm EST/2009 GMT

Copper prices will continue to decline over the next 18 to 24 months as China's reduced appetite for the base metal puts a major drag on global demand and copper supplies rise, CRU Consultant Matthew Wonnacott said Wednesday.

"The downturn has not yet reached the bottom," Wonnacott said at the American Copper Council's fall meeting in Palm Beach Gardens, Florida. "We have 18 months to two years yet."

He said CRU also sees a major rebound for copper prices around 2019, as the market shifts to a supply deficit of roughly 400,000 mt, with prices potentially rocketing to $8,000-$9,000/mt.

But in the near term, copper's bearish price outlook will persist, with CRU forecasting the LME copper price sliding to an average $6,750/mt next year and to a range of $6,300-$6,400/mt in 2016.

A major factor underlying the price decline is the lackluster demand picture for copper, Wonnacott said. "A weaker China will weigh heavily on global growth," he said, with a modest demand pickup in regions like North America not enough to offset China's slowdown.

He forecast global copper demand growth in 2015 at 3.3%, compared with 3.9% growth this year. China's copper demand will grow by just 4% next year, Wonnacott added -- which he said is the slowest rate since 2006 -- while European demand will contract by 2% and North American demand will rise 2.8%.

Wonnacott said China's copper imports would ease markedly in the first six months of next year, as factors like the Qingdao port scandal earlier this year cutting into China's use of the metal for financing deals.

China's previously robust copper import levels had tightened the market in the rest of the world, Wonnacott said, but as China cuts back, "that should ease the market for consumers in North America."

He said China's brisk copper buying has been supporting copper premiums in North America, although the recent widening LME/COMEX arbitrage has put some pressure on premiums.

"The weak COMEX price makes the North American market less attractive to international sellers," he said.

In North America, Wonnacott said, "Construction [demand] will need to start performing to push growth higher." He said the industrial sector was the best performer in North America this year from a demand perspective, adding that the trend should continue in 2015.

China's construction industry is expected to contract by 120,000 mt next year, he said, with the slump also leading to weaker demand from the country's utility industry. On the other hand, copper demand from China's industrial sector is solid, he said, particularly for replacement demand.

On the supply side, Wonnacott said mine supply growth would accelerate in 2015, with supply growth forecast at 5.7%. He said a quarter of the growth would come from Indonesia boosting output, with half the growth coming from projects that are well underway with little risk of disruption or delay.

Wonnacott said the supply growth would begin to ease in 2017 as, by that time, there will be higher-risk projects in the pipeline. "Mine supply growth will slow quite quickly," he said. "We don't expect all of these projects to come online."

He added that to slow the coming mine depletion "[w]e need to see investment now, but we're not seeing it, so the slowdown is inevitable."

Wonnacott said refined-copper production would exceed 4% growth in the next three years, but would slow sharply from 2017 forward. Production will outstrip consumption in that time, he said. He also said China's imports of refined copper will fall next year, as the country processes more of its own metal.

INCREASED CAPACITY A 2015 HEADWIND: SOUTHWIRE

Phil Tuggle, Southwire's senior vice president and general manager of building wire, told the conference his company sees 3-6% growth in the US construction industry next year, led by industries like renewable energy and data centers. He noted that wind and solar energy are being supported in some states by tax incentives.

Tuggle said 14,000 MW of wind energy capacity was under construction in 2014.

He said in an interview that the biggest headwinds for copper producers like South wire next year would be increased competition and increased processing capacity by rivals. "There'll be increased capacity competing for the same number of pounds [of copper]," he said.