Copper price back below $3 on supply worries, Chinese GDP

Outlook has darkened

In New York trade on the Comex market on Monday, December copper dipped to $2.9670 a pound, falling below the the psychologically important $3-level for only the second time since March’s near 4-year low.

In afternoon trade the red metal recovered somewhat at $2.9865 ahead of the release on Tuesday of economic growth data from China, consumer of 45% of the globe’s copper.

Market analysts expect China’s economy to grow 7.2% in the three months ending September 30, down from growth of 7.5% in the preceding quarter and at the slowest pace since 2009.

Given its widespread use in transportation, manufacturing and construction the copper price is sensitive to any economic slowdown.

China’s initial manufacturing purchasing managers’ index (PMI) for October to be released on Thursday is expected to show further cooling of the country’s manufacturing industry, which as as the graph shows is a good indicator of the direction of the copper price.

Slowing demand from China and Europe and particularly growing supply side worries have seen the price of copper fall 11% in 2014.

Chile, responsible for almost a third of world output, has pushed production 4.5% higher this year and after a six-month hiatus which helped copper prices hold up during the summer, Indonesian exports have resumed.

A new report by GFMS predicts over the next six months, more than a million tonnes of new copper capacity, or around 6% of global mine production, will come on stream.

Copper price back below $3 on supply worries, Chinese GDP

Source: Capital Economics

A slew of new mines in Peru, led by China Minmetal’s $6 billion Las Bambas project, coming on stream next year and in 2016 will double production to 2.8 million tonnes, placing the South American nation in second place globally behind Chile.

Other significant projects include First Quantum’s Sentinel project in Zambia which will add 300,000 tonnes starting this year, Southern Copper Buenavista expansion in Mexico will add 170,000 tonnes next year while the KGHM-Sumitomo Sierra Gordon project kicked off production of 220,000 tonnes per annum earlier this month.

The latest report by The International Copper Study Group forecast after five straight years of deficits, the copper market should swing into a production surplus in 2015 of an estimated 390,000 tonnes. Analysts at Macquarie puts the surplus of refined copper at 475,000 tonnes this year.

ICSG forecasts world refined copper production is likely to increase by about 5% year-on-year to 22.1 million tonnes in 2014 and by a further 4% to 23.1 million tonnes in 2015 as a result of new electrolytic plants coming on stream in China.

Image of Shanghai cable factory circa 1965 by Thomas Fisher Rare Book Library