Analysts are slashing predictions for the first copper glut in four years as producers from Chile to Indonesia contend with aging mines andplanta movel de beneficiamento de pedreira strikes at a time of record demand.
The global surplus will total 18,500 metric tons, according to the median of 22 analyst estimates compiled by Bloomberg, 85 percent less than a January forecast of 124,000 tons. Barclays Plc expects shortages in the first half of next year and Morgan Stanley and JPMorgan Chase & Co. anticipate an annual deficit. Prices will rally as much as 14 percent to $8,700 a ton by Dec. 31, the median in a survey of 15 analysts shows.
Mining companies on average are processing about 15 percent more ore than they were in 2000 to extract the same amount of metal, according to Macquarie Group Freeport-McMoRan Copper & Gold shut Grasberg, site of the world’s largest reserves, for two weeks in the first quarter after violent protests, following a three-month strike in 2011. Demand growth will accelerate to 4.7 percent next year from 1.5 percent in 2012, Morgan Stanley estimates.
“It’s really a matter of scarcity in copper, with mined supply lagging behind expectations,” said Thomas Benedix, a Stuttgart, Germany-based metals analyst at Tiberius Group, which manages about $2.1 billion of assets. “At the start of the year people were expecting that the supply side could really start delivering on their targets, and now it’s not going to happen.”
Copper fell 17 percent in the four months to June 8 on the London Metal Exchange, 3 percentage points less than the common definition of a bear market. It’s since rallied 4.6 percent to $7,634, for an annual gain of 0.5 percent, beating the 2.3 percent drop in the Standard & Poor’s GSCI gauge of 24 raw materials. The MSCI All-Country World Index of equities rose 3.8 percent and Treasuries returned 2.6 percent, a Bank of America Corp. index shows.
While the International Copper Study Group forecasts mine output will expand 5.1 percent this year and 7.6 percent in 2013, production has missed the Lisbon-based group’s initial forecasts in each of the past five years, data compiled by Bloomberg show.
Deutsche Bank AG cut its 2013 surplus forecast to 260,000 tons from 300,000 tons on July 3 and JPMorgan is now predicting a 295,000-ton shortfall, compared with a January projection for a 259,000-ton glut. Bank of America Merrill Lynch said July 9 it expects a 7,000-ton surplus from 120,000 tons forecast in April. Barclays puts the last surplus in 2009.
Morgan Stanley’s prediction for additional consumption of almost 1 million tons next year is more than Santiago-based Codelco, the world’s largest producer, can extract from Codelco Norte, its biggest source of copper, according to data compiled by Bloomberg.
The changing forecasts have yet to be recognized by hedge funds. Speculators more than doubled their net-short position, or bets on declining prices, in the week ended July 10, U.S. Commodity Futures Trading Commission data show.
The funds have been bearish since the end of May, the longest streak since January, on mounting concern that central banks and other policy makers will fail to shore up growth. About $4.8 trillion was erased from the value of global equities since the end of March, data compiled by Bloomberg show. Copper buyers are delaying purchases because Europe’s debt crisis may derail the global economy, Codelco Chief Executive Officer Thomas Keller said in an interview June 6.
A purchasing managers’ index for China, the biggest copper consumer, reached a seven-month low in June, HSBC Holdings Plc and Markit Economics said July 2. U.S. manufacturing shrank in June for the first time since July 2009, the Institute for Supply Management reported the same day. Service industries and factory output in the 17-nation euro area contracted for a fifth consecutive month, Markit reported July 4.
“Things have definitely worsened in the past few months,” said Dan Smith, a commodities analyst at Standard Chartered Plc in London. “In the short term, the economic picture is going to get weaker and that will affect the copper market. Sentiment is really what drives this stuff.”
The European Central Bank reduced interest rates to a record low on July 5 and the Bank of England announced the resumption of bond purchases on the same day. Federal Reserve policy makers are scheduled to announce a rate decision Aug. 1.
