ICSG Highlights Copper Supply Challenges Amidst Cautious Demand Outlook
The International Copper Study Group (ICSG) has recently adjusted its expectations for the global copper market, reducing its forecast for the supply surplus for this and the coming year due to significantly lower mine production than initially anticipated.
While the refined copper market is still projected to experience an oversupply, with estimates suggesting a surplus of 162,000 metric tons this year and 94,000 metric tons next year, these figures represent a sharp decrease from the previously forecasted 467,000-ton surplus. This revision indicates a tighter correlation between production and demand in the vast 27-million-ton global market. These adjustments bring to light the current concerns about constraints on raw materials which are expected to limit the growth in refined metal output.
However, a tone of caution is evident in these forecasts, particularly concerning global copper usage. A downward revision for this year’s usage, coupled with a restrained demand outlook in China – the world’s largest copper consumer – suggests a more complex scenario for the copper market.
Concentrate Supply Squeeze
The ICSG had initially predicted a significant increase in mine supply for the year, propelled by new mining projects, expansions, and recovery from 2023’s operational challenges. Instead, a mere 0.5% growth is now anticipated due to delays in project rollouts, revisions in company forecasts, and the unexpected shutdown of the Cobre Panama mine, which has significantly impacted the global copper concentrate supply chain.
This shortfall has compelled smelters to source copper concentrates from the spot market, leading to a notable decline in spot treatment charges as procurement priorities shift towards securing material volumes over profitability. This development played a crucial role in the surge of London Metal Exchange three-month copper prices, reaching levels not seen since April 2022.
Refined Metal Output Constraints
The squeeze on concentrate availability has directly impacted the forecasts for refined metal production. The ICSG has pared down its growth expectations for refined copper output, with a notable slowdown anticipated next year as well. Constraints in concentrate availability, despite the expansion of smelting and refining capacity in regions like China, Indonesia, and India, are predicted to limit growth in primary refined copper production.
Although there will be some compensation from increased solvent-extraction metal production and improved scrap recycling, the overall refined copper supply growth is expected to be modest moving into 2025.
A Cautious Stance on Demand
Even with the adjustments in supply forecasts, the ICSG expresses caution concerning copper demand. The anticipated growth in refined metal usage has been downgraded for the current year, with a slightly more optimistic but still modest expectation for 2025. This outlook reflects a diverging trend between Chinese demand – expected to slow – and the rest of the world, where a more robust growth due to new semi-manufactured product capacities, especially in India, is forecasted.
Despite acknowledging the potential long-term demand uplift from the global energy transition, the ICSG’s near-term demand growth estimates remain conservative, capturing the nuanced dynamics of the copper market.
Market Dynamics: A Split Perspective
The contrasting views between investment participants and physical buyers in the copper market underscore the current split in market dynamics. Investment funds have dramatically increased their long positions in copper, buoyed by narratives of structural supply challenges and optimism around global manufacturing. Conversely, physical buyers, particularly in China, have been more reserved, as evidenced by the sharp decline in the Yangshan copper premium, a key indicator of Chinese import demand.
While the ICSG’s latest forecasts might reassure investors about the depth of mine supply issues, consumers might find the cautious demand outlook more aligned with their sentiments, highlighting the complex interplay of factors shaping the global copper market.
