Big global copper surplus? Mine cutbacks force rethink
LONDON, Jan 14, 2015 (Reuters) –
Cuts in copper mine output are raising doubts about the extent of a widely expected global surplus that has driven down prices, and the reduced production could support a market rebound. An expected glut of supply in 2015 is one reason - along with tanking oil prices - why investors have been selling the metal in droves in the past six months, pulling prices to their lowest level in 5-1/2 years.
But several mining companies have cut their expected 2015 copper production, mainly for geological or technical reasons - and only now are new forecasts emerging from analysts downgrading global output this year. Some have gone so far as to wipe out the surplus altogether and pencil in a deficit. "The market is not going to be as over-supplied as we had originally thought after several announcements on cutbacks," said Vivienne Lloyd, base metals analyst at Macquarie. "We expect the market to be quite balanced this year."
Concerns about economic growth in China, which accounts for 40 percent of global copper consumption, has also weighed on prices for the metal - often seen as a bellwether for economic health because of its use in industries from construction to consumer goods.
However some economists say any pick-up in the Chinese property sector this year could boost demand for copper and further eat into a global surplus. Analysts polled by Reuters in October had expected the global surplus to shoot up to 350,000 tonnes this year from a forecast 94,300 tonnes in 2014. Since then, Rio Tinto has trimmed expected 2015 output at its Kennecott U.S. operation by about 100,000 tonnes and BHP Billiton has cut around 150,000 tonnes from forecast production at Escondida in Chile, the world's largest copper mine, said Citi analyst David Wilson.
Glencore (Xetra: A1JAGV - news) has reduced its forecast for output at its Alumbrera mine in Argentina by 50,000 tonnes, Wilson said in a note. "We expect the late arrival of the rain season in Zambia and DRC (Democratic Republic of Congo) will have a significantly negative impact on open pit copper mining activity in both regions," he added.
