UNITED KINGDOM July 03 2015 12:32 PM
LONDON (Scrap Register): Demand has been weak for the first six months of 2015, and as a result analysts at Deutsche Bank have downgraded their global demand growth forecasts to 2.9% on the back of slower than expected investment in the grid infrastructure in China.
Although Deutsche Bank expects a second half pick-up, the momentum on the Power FAI and the power cable output is negative. The rate of disruption and guidance downgrades has slowed in Q2.
The reversal of the decision to idle Lumwana, with the Zambian government backtracking on open-cut royalties, means that we now forecast a modest 4% mined supply growth in 2015E. The downgrades have however been balanced both on demand and supply.
The net result however is that the fundamental picture remains pretty much unchanged – a modestly over-supplied market with a surplus of 100 – 200kt. Deutsche Bank continues to expect an improvement in demand in H2, and prices to recover modestly from current spot levels.
Although Deutsche Bank thinks a recovery in Chinese property development in 2016 will support the demand outlook, the copper market is still looking at a surplus market of c.500kt due to the final flurry of mine commissioning.
So whilst the near-term focus has been on weak Chinese demand, Deutsche Bank thinks the 2016 “hump” is also a contributing factor to the lacklustre price performance.
“The surplus in 2016E is enough to push the stock to consumption ratio up a notch, and will ultimately weigh on prices in our view. This will spill over into another year of weaker pricing in 2017 in our view,” analysts at Deutsche Bank added.
Due to the combination of weak near-term demand conditions and a surplus next year, Deutsche Bank thinks copper will remain vulnerable to periodic bouts of “shorting” as is currently the situation.