2013 Outlook Commodities Review: Copper

2013 Outlook
Commodities Review

Copper
Robin Bhar

Key points

■ At current levels, around $7,600/t, we anticipate limited downside risk as fundamentally the copper market remains tight; there is scope for prices to rise given a belief that the Chinese economy has bottomed and a rebound is expected over the coming months.

■ From a supply/demand perspective the global copper market remains close to balance. The market’s long-term fundamentals remain robust given urbanisation in developing economies. A slower supply response from the industry should be corrected from next year onwards.

■ Although copper substitution into aluminium remains a very real threat as the ratio between the two metals is still high at 3.9, overall substitution remains small (~2% of the global market), especially in high volume sectors. Substitution has not significantly increased penetration by aluminium due to the fact that copper remains a material of choice, as it is energy efficient and carbon sensitive.

■ China remains the key driver of the copper price as it consumes some 35-40% of global copper output. An infrastructure-led recovery, with spending brought forward in sectors such as power generation/distribution and the railway network, should underpin a pickup in copper demand.

■ The US SEC is scheduled to rule on whether to approve copper ETFs. Physically-backed copper ETFs could tie up a significant portion of LME stocks and push prices higher to the detriment of physical consumers. Investors though could baulk at the high fees to buy them.

■ Will mine output growth meet expectations for the first time in a very long time? We believe it will and, as a result, we now expect a slightly reduced 50,000-tonnes deficit this year followed by a 250,000 tonnes-surplus forecast for 2013. We forecast average prices of $7,975/t in 2013, little changed on this year’s estimated average of $7,980/t.