SHANGHAI, Nov. 15 (SMM) - Copper prices have climbed 25% in November after hovering at lows in the first ten months of this year.
Is fundamental really improving? Will fundamentals support copper to maintain its momentum in 2017?
The recent sharp gains in copper prices are due mainly to liquidity, risk aversion and boost from other commodity markets, not fundamentals, said a senior copper analyst from SMM at the 2016 SMM Summit.
Copper prices will rise at first and then fall next year.
SMM gives some takes on copper market fundamentals.
Global Copper Ore Supply to Slow in 2017
China’s copper ore output grew slowly in 2016. As copper prices have consolidated at lows this year before recent gains, some Chinese copper mines delayed commissioning of expanded and suspended products. Domestic copper ore output will increase 4.4% in 2017 after these capacities delayed come online. SMM finds in a survey that some copper mines will restart production if copper prices maintain upward momentum.
Output at overseas mines, in contrast, grew much more rapidly this year. Output at global copper mines increased over the past two years. Global supply grew nearly 5% in 2016, but the increase will slow to 3% in 2017, SMM predicts based on an SMM survey.
China Will have 1 Million Copper Refining Capacities Coming online in 2017
Growth rate of refined copper output will decrease slightly in 2017 due to fewer refined copper projects in 2016, SMM predicts based on a survey which covers 90% of Chinese copper smelters. But, growth rate will rebound in 2018 as capacities coming on stream in 2017 step up production.
SMM statistics show only three new copper smelters put capacity into production in 2016. About 1 million tonnes of refined copper capacity will be brought online in 2017, mainly in the latter half of the year, which will affect growth of refined copper output in 2018.
China’s refined copper supply will increase 4.9% in 2016, with output of 7.76 million tonnes, SMM said. Growth in refined copper supply will slow to 3.1% in 2017, and output is expected to be 8 million tonnes. In 2018, the growth will rebound to 3.8% and output will be about 8.30 million tonnes.
Release of Bonded Zone Inventories may Add to Supply Pressure
Sharp drop in copper inventories in China and overseas markets is attributable to recent copper price increases. While visible inventories fell, invisible inventories increased, SMM understands.
There are about 470,000 tonnes of copper inventories in Shanghai bonded zone at present, SMM learnt. These inventories include occupied inventories, such as those for financing purpose, and flowing inventories.
Occupied inventories in bonded zone converted to flowing inventories after the Qingdao port scandal in 2014, adding to supply. As China is tightening regulations on copper imports for financing and arbitrage purpose, the remaining 300,000 tonnes of occupied inventories will put pressure on China’s copper supply, but not any time soon.
Domestic invisible copper inventories including those at bonded zone, smelters and processors grew noticeably from late 2015, especially bonded zone inventories, according to SMM statistics. Inventories at smelters and processors remained stable.
Raw material inventories at copper processors were low in 2016 after stock depletion in 2015.
On the demand front, copper consumption topped market expectations in 2016. Operating rates at copper processors are higher this year compared to 2015, with sales at some copper wire rod producers increasing in the first half of the year, according to SMM survey.
Copper Consumption by Industry
Copper consumption by the power industry was strong in 2016 because of rapid power grid investment and aggressive installation in the PV industry before June 30. SMM had found in a survey copper wire rod producers benefited from high power grid investment.
China’s fiscal expenditure in power grid investment is high this year. But with high government debt, investment in power grid will unlikely see rapid growth next year, but will stay high, SMM reckons.
Home inventories in China fell sharply this year, but stock depletion will stop next year. Home appliance industry also benefit from this in 2016. Any further contribution to copper consumption by the property market will be very small in the latter half of 2016.
The air conditioner market weakened at first but then improved in 2016 due to tail effect of the property market. Air conditioner inventories decreased from 50 million sets early this year to 25 million sets. Copper consumption by the air conditioner industry will continue to rise in the first half of 2017, but fall in the latter half of the year, also because of tail effect in the real estate industry, SMM said.
China’s automobile output and sales were strong this year, helped by preferential purchase tax policy. After the policy is abolished by the year’s end, growth in the automobile industry will slide remarkably next year, SMM believes. Nonetheless, growth in new energy vehicles and urban railway system will offset declines in copper consumption.
Outlook for Copper Supply & Demand Balance in 2017
China’s copper consumption will increase 2.8% in 2016, but down to 2.6% in 2017, SMM foresees. Growth will bounce back to 3.2% in 2018.
China Copper Supply & Demand
China’s refined copper output will be 8 million tonnes in 2017, with imports of 3.55 million tonnes and 400,000 tonnes of exports. Copper consumption will be 11.88 million tonnes, up 2.55%.
Copper Price Outlook in 2017
LME copper prices will move between $4,600-6,470 per tonne in 2017, and SHFE copper will fluctuate in the 36,800-51,760 yuan per tonne range, SMM anticipates.
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