Industry / Basic Materials


Group Research / November 25, 2019

Photo Credit - AFP

Overall Outlook

Sluggish demand but market to remain in deficit

Sluggish demand in 2019 but expected to recover in 2020

  • Global refined copper demand to decline 1.4% y-o-y in 2019 due to demand slump in all regions.
  • Lower demand in 2019 is largely due to the negative growth in automobile sector as auto sales in major markets declined by 5.6% y-o-y in 1H19 while China’s car sales plunged by 11%.
  • Nonetheless, copper demand is expected to pick up slowly from 4Q19 onwards, supported by recovery in China’s manufacturing and auto sector. Global demand in 2020 is forecast to increase 2% as stimulus fiscal policies in major countries such as China, Germany and US should support copper demand growth from 2020 onwards.

Supply: Ample mine projects planned but mined output continues to face

  • Copper mine production is forecast to grow marginally by 0.5% y-o-y in 2019 as local community protests in Peru and anti-government protests in Chile have dampened mined copper supply.
  • There will still be risks on the supply side due to environmental protection by the government and local community and lowering grades.
  • However, there are ample projects in the pipeline which would increase concentrates production by 3-5% for the next three years.

Refined copper production to decline in 2019 but to recover from 2020 onwards

  • The growth of refined copper production is forecast at -1.4% in 2019, limited by the availability of concentrates and smelter shutdowns around the world.
  • The significant decline in spot T/C (7-year low point of US$55.5/ton in Aug and c US$60/ton as of Nov) negatively affects smelters’ profitability.
  • However, global smelting and refinery capacity is projected to grow by 4.3% in 2019, mainly led by growth in China (e.g. 400k capa by Chalco), which will lead 3% production growth in 2020 backed by increased supply of mined copper.

Copper market remains in deficit and copper prices to rebound

  • Copper market would remain in deficit of c. 400k tons in 2019 mainly due to supply restriction, however, its deficit to narrow in 2020 with supply growth accelerating.
  • We forecast LME copper price to average US$5,982/ton in 2019 and flattish in 2020 as economic uncertainties and concerns on demand are weighing on copper price despite persisting deficit in supply-demand balance, as copper is a representative cyclical metal.
  • We expect copper prices are likely to rebound at any positive signal for recovery in macro economy in near term backed by market deficit and low inventory.
  • Based on our emerging new demand from EV and higher exploration and production cost, copper price is forecast to average higher head towards US$7,000/ton levels over the long term.
  • The key risks on the prices are stronger expansion of mine capacity and unprecedented global economic slowdown.

Key Industry Trends

1H19 copper market at a glance: Sluggish demand/supply/prices

According to ICSG (International copper study group), 

  • Copper mine output declined 1.4% y-o-y in 1H19: Concentrate production (-1%, solvent extraction-electrowinning (SX-EW, -3.5%).
  • Production in Chile (biggest copper mine producer) and Indonesia declined by 2.5% and 55% respectively due to lower copper grades, and transition of two major mines to different ore zones.
  • Copper refined production declined by 1.1% y-o-y in 1H19: Primary production (-1.5%: electrolytic and electrowinning); secondary production (+1%). By region – Asia (2%) and Oceania (15%) saw growth but Africa (- 9%), the Americas (-10%) and Europe (-1%) all witnessed declines.
  • Apparent refined usage retreated 0.7% y-o-y in 1H19 driven by declines in Asia and Europe.
  • World refined copper balance in the same period indicated a deficit of about 220k tons in 1H19, widened from a 177k tons deficit in 1H18.
  • Despite the wider market deficit, copper price has declined since Apr due to weak sentiments arising from US-China trade tensions and rising concerns over the global economic slowdown. Average LME copper prices in 1H19 declined by 10.8% y-o-y.

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