Warehouse stocks surging 40% just the start of copper sea change

After a brutal February that saw the copper price tumble more than 7%, the metal is beginning to build a base around $3.50 a pound.

At these levels the price of copper is still well above the marginal costs of most producers which are in the $6,000 – $7,000 a tonne range or roughly $2.75 – $3.15 a pound.

Copper has stayed at these relatively lofty levels thanks to largely static supply in global markets for a number of years.

In 2012 preliminary data show copper production by the top 10 companies rose only 2%, from 9.14 million tonnes in 2011 to 9.31 million tonnes.

But a slew of new mines are coming on stream this year — the International Copper Study Group predicts a 6.4% jump in mine output.

After struggling last year number one producer Chile should increase exports again thanks to a $5 billion investment by state-run Codelco to expand capacity and increase the life of existing mines.

Neighbour Peru is targeting a doubling of production over the next three years to 2.8 million, the country's mines minister told a conference today, while emerging copper producers in the DRC and Zambia will add to the steady stream of new supply, growing output by 22% and 8% respectively.

Add to that a resurgent Indonesia thanks to a forecast 30% production increase at Grasberg, one of the world's largest copper mines and Mongolia's Oyu Tolgoi which should enter commercial production mid-year and it is clear that the dynamics of the copper market is shifting.

AMM.com quotes (paywall) an analyst from the market research firm Wood Mackenzie today as saying, from 2013 through 2017, as much as 5 million tonnes of added global processing capacity is coming on stream.

Other market commentators also predict a growing surplus in the copper market.

Investment bank HSBC sees a 200,000 tonne surplus this year growing to 650,000 tonnes in 2014 and 1 million tonnes in 2015.

LME Warehouse levels have surged over 40% this year and have almost doubled over the last six months, hitting 462,000 tonnes today.

Large buyers have already seen supply coming onto the market with England-based Luvata which buys around 200,000 tonnes of the red metal annually telling Bloomberg it has not seen this much copper on offer for at least seven years.