(Minews) - An expected copper surplus may not materialise next year, according to Glencore, the third-biggest producer of copper in the world.
Strong Chinese demand and expected mining disruptions could lead to a deficit of up to 1.8m tonnes, Telis Mistakidis, head of copper at Glencore, said at the company’s investor day in London on Wednesday.
“We don’t see the surplus,” Mr Mistakidis said. “Every time we’ve come toward this so-called glut it kind of disappears.”
Copper prices have fallen 12 per cent year to date on worries of falling Chinese demand and rising supplies. Most analysts and consultants are forecasting a surplus in the copper market in 2015.
Yet those forecasts have gradually been trimmed. Leading consultants such as Wood Mackenzie and the International Copper Study Group have both brought down their surplus forecasts in the latter part of this year.
Chinese consumption has also proved to be resilient, with a surprise cut in the country’s interest rates for the first time since 2012 easing credit conditions in the economy.
Chinese consumption has actually been “extremely strong”, Mr Mistakidis said in a presentation to investors. “Anyone who says Chinese demand is slowing, I don’t know where they get it from,” he added.
Chinese copper consumption has grown at an average of 16 per cent year over year from August to October, according to calculations this month by Jefferies.
One of the reasons has been the lack of scrap in the country, according to Mr Mistakidis, which means this has to be replaced with copper cathode, or refined metal. Jefferies estimates China’s imports of scrap have fallen 10 per cent over the past year.
China’s State Reserve Bureau, a customer of Glencore, has also been buying this year but not as much as the 700,000 tonnes suggested by some reports, Mr Mistakidis said.
“If you look at how they operate it has changed very much under the new regime. It’s a completely new team there, they’re much more open,” he said.
On the supply side of the equation there are an increasing number of potential supply disruptions. BHP Billiton has flagged lower output at Escondida, the world’s biggest copper mine, because of declining ore grade. Rio Tinto also said last week its production of the red metal would drop to 500,000-535,000 tonnes next year, from 615,000 tonnes, mainly because of rehabilitation work at its Kennecott operation in Utah.
Nevertheless, both miners believe the copper market will be in surplus over the next two years.
“As we move into 2015, the copper industry will continue to be oversupplied in the medium term which will drive continued volatility in prices,” said Jean-Sébastien Jacques, head of copper at Rio this month.
In addition, total copper stocks including Shanghai Futures Exchange, London Metal Exchange and the Comex in the US are at their lowest levels since late 2008, he said.
“The inventories actually tell you we’ve been in a deficit,” said Mr Mistakidis.
Copper for delivery in three months on the London Metal Exchange was down $37.5 at $6,433 a tonne on Wednesday.
