The latest in a series of seemingly contradictory reports. Who knows but it sounds promising. Chart not included in this copy/paste from the Globe & Mail:
. . . . . . .
Andy Home
London — Reuters
Published Wednesday, Oct. 07, 2015 4:30PM EDT
Last updated Wednesday, Oct. 07, 2015 6:31PM EDT

http://www.theglobeandmail.com/globe-investor/investment-ideas/coppers-outlook-might-be-rosier-than-you-thought/article26708970/

Everyone’s worried about the state of copper demand, particularly in China, which accounts for about 45 per cent of global usage. The price itself looks wobbly. Currently trading at about $5,250 (U.S.) a tonne, basis LME three-month metal, it is already down by about 16 per cent so far this year, with plenty of bears calling for lower prices still.

But copper has a habit of confounding the consensus view. Consider the latest forecasts from the International Copper Study Group (ICSG).

The group has slashed its April forecast for a 364,000-tonne surplus this year to just 41,000 tonnes. And rather than expecting another 228,000-tonne surplus next year, it is now projecting a 127,000-tonne supply deficit.

So what’s changed since the ICSG last met in April?

As the group puts it, “the revisions reflect substantial changes in market conditions since April, 2015.”

The slowdown in China is folded into a major downward revision of the ICSG’s estimate of global demand this year from growth of 0.6 per cent to a 1.2-per-cent contraction.

“Apparent usage” is expected to be flat in China. “Apparent usage” is a calculation based on Chinese production, changes in visible stocks and net imports.

Real usage is a different thing altogether and one that is extremely hard to calculate. But the ICSG notes that “underlying ‘real’ demand growth in China is estimated by others at around 3 to 4 per cent,” down from a figure of 4.5 per cent to 5.0 per cent used back in April.

As for next year, the ICSG has trimmed only very marginally its assessment of global usage, including “apparent usage” in China, to 3.0 per cent from 3.1 per cent in April.

Quite evidently, if the ICSG has reduced its 2015 surplus forecast and its usage forecast, something big must have changed on the supply side of the equation.

And it has. But not, maybe, in the obvious way.

The group has cut its growth forecast for mined production this year to just 1.2 per cent from its April forecast of 4.4 per cent and for next year to 4.2 per cent from 5.1 per cent.

Major producers such as BHP Billiton Ltd. and Rio Tinto Group came out with significant reductions in production guidance at the start of the year.

Since then there has been a long, long list of unforeseen supply hits ranging from labour unrest in Chile, through bad weather just about everywhere and chronic power shortages in key African producing countries such as Zambia and Democratic Republic of the Congo (DRC).

More significantly for the refined metal market balance, though, is the cut the ICSG has made to its refined metal production forecast. This is now expected to grow by just 0.8 per cent this year, compared with 7.0 per cent last year and an April forecast of 4.1 per cent.

Refined production is usually more predictable than mined production because it is less prone to the host of technical issues associated with mining.

But this is where the other “substantial change” in market conditions kicks in, namely price-related cutbacks.

Most of the full closures have been among small operators with high costs such as Aura Minerals Inc.’s Aranzazu mine in Mexico, Revett Mining Co. Inc.’s Troy mine in the United States and First Nickel Inc.’s Lockerby mine in Canada.

Far bigger in terms of tonnage and market impact are the voluntary curtailments announced by the likes of Glencore PLC, Freeport-McMoRan Inc. and Asarco Inc.

And just about all of these have been cuts to leaching operations at mines. Leaching, or to give it its proper technical name, solvent-extraction-electrowinning (SX-EW), is a technology that allows mines to produce metallic copper without the need for separate smelting and refining.

Glencore’s 400,000 tonnes of cuts in Africa comprise SX-EW capacity in the DRC and conventional smelter capacity in Zambia.

Freeport’s 136,000-tonne annual cuts at its U.S. mines and its El Abra mine in Chile are all in the form of leaching capacity.

And the same with Asarco’s 30,000 tonnes of cuts in the United States and for the 30,000 tonnes of cuts just announced at the Collahuasi mine in Chile.

Global SX-EW production is forecast by the ICSG to fall by 4 per cent this year and by another 4 per cent in 2016 on the back of these cutbacks.

It’s this component of the supply picture that has changed most over the past few months, leading to the ICSG recalculating its estimates for supply-demand balance for both 2015 and 2016.

The market impact of these cuts is amplified by the fact they affect immediately what happens to the refined copper balance rather than having to be transmitted, possibly imperfectly, via the smelting stage of the supply chain.

And, as the ICSG has just shown, that refined copper market balance suddenly doesn’t look as overwhelmingly bearish as it did.