Shifting Dynamics in Copper Supply
In a recent Reuters opinion piece, Andy Home stated that in its recent meeting in Lisbon, the International Copper Study Group (ICSG) foresees a transition from a supply-demand balance in 2023 to a significant surplus in 2024. The projection exceeds the usage by a substantial 467,000 metric tons in 2024, an upward adjustment from their April meeting’s forecast of a 297,000-metric ton surplus.
While a market deficit is anticipated this year, the originally predicted 114,000-metric ton deficit has been significantly reduced to a mere 27,000 metric tons, only a fraction in a 26-million metric ton global market.
However, the ICSG clarifies that such forecasts are only representative for the time being, reminding that actual market dynamics occasionally differ due to unforeseen factors.
Western Demand Falls as China Flourishes
A notable development since the Group’s last gathering in April is the stark decline in demand outside China, coupled with an evident surge in Chinese production.
Western copper usage, initially expected to increase by 1.6% this year, is now projected to drop by 1.0%, influenced predominantly by decreased refined usage in European and North American regions. Meanwhile, China’s “apparent” copper usage is predicted to rise by 4.3%.
This emphasis on “apparent” is essential, given the ICSG relies on reported data to gauge China’s market status. Despite this, there’s a consensus in the copper market that Chinese demand has indeed exceeded expectations this year, seemingly shielded by its application in green transition sectors.
Glimpses of 2024
Despite the challenging global economic landscape, the ICSG remains sanguine about 2024, only marginally trimming its growth forecast for global usage from 2.8% to 2.7%. They base their optimism on anticipated improvements in manufacturing activity, the ongoing shift towards green energy, and the development of new production capacities worldwide.
In line with this, a 4.6% increase in global refined copper production is anticipated next year. This surge seems to have already taken root, with ICSG updating their 2023 growth prediction from 2.6% to 3.8%. Predominantly, this growth stems from China, which is diligently expanding its production capacity.
The copper market expressed surprise at the magnitude of the projected surplus for 2024 by the ICSG. Analysts had been leaning more towards a surplus for both 2023 and 2024. As Western demand possibly remains stagnant, questions arise regarding how the early 2023 production excess will align with ICSG’s year-end projections.
There’s an undeniable consensus that the copper market is steering into a phase marked by rapid production growth, contrasted with wavering demand outside of China. This mix appears to be exerting downward pressure on copper prices, which recently dipped below the $8,000-per metric ton mark, settling at $7,940.
While copper’s role in the future of energy remains promising, present supply-demand dynamics are seemingly testing the market’s mettle.
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