After a 17% rise last year, copper prices may struggle to record significant sustained gains for the rest of 2012’s first half but should rise later in the year, and could test the $9,000 per metric ton level, analysts for Thomson Reuters GFMS said Tuesday in releasing their Copper Survey for the year.
The survey was released in Santiago, Chile, as part of the annual Cesco week gathering of the copper industry. Sanjay Saraf, base metals research director for Thomson Reuters GFMS, said the company is forecasting a first half average price of $8,305 per metric ton and an average for the year of $8,475 per ton.
“There is a continued negative impact on sentiment and consumption from the ongoing euro-zone crisis, and recent data and reports from China indicate a cooling economy and subdued demand conditions,” Saraf said in prepared remarks. “Thus we believe that near-term downside risks remain for risky assents in general, including copper.”
He noted that while Chinese refined copper imports have increased sharply in early 2012 with the first two months tallying a 76% year-on-year rise, similarly increasing Shanghai exchange stocks and anecdotal reports of rising inventories of copper in Chinese bonded warehouses suggest that the imported metal has not gone into end-use consumption.
The Thomson Reuters GFMS analysts believe continued monetary easing in Europe, North America and China resulting from weakening economic signals will underpin copper price levels and support buying on dips, but prices are unlikely to challenge previous record highs above $10,000 per ton.
“There is a possibility that prices could retest the $9,000 level later this year as improving demand and the impact of looser monetary policy drives increasing investment in the copper market,” Saraf said. “The market would, though, struggle to sustain any significant gains beyond this, given the current backdrop of heightened macroeconomic concerns and risks.”
The consultancy’s Copper Survey 2012 highlights tightness in copper fundamentals during the years since the Lehman Bros. financial crisis and deficits in the market in 2010 and 2011. “Whilst we do see higher mine output growth this year, the supply-side of the balance equation remains relatively tight and there are still potential risks that could prompt similar disruptions to production to those seen in previous years,” Saraf said.
“However, even factoring in increased mine supply we are still forecasting a deficit for 2012 as a whole, albeit a smaller one than last year’s estimate of 256,000 tons. Looking forward into 2013, that trend is likely to continue, but it is anticipated that the copper market will remain close to balance.”
The survey found that factors that combined to reduce the rate of demand growth last year included the impact of the euro-zone crisis and failure of China to register double-digit growth in consumption for the first time.
The survey also details copper mine costs, identifying a 16% increase in average production costs last year. Analysts said marginal or 90th percentile production costs were approximately half the 2011 annual copper price of $8,188 per metric ton.
But they also noted that operating costs continue to rise significantly above inflation rates and increasing capital costs with the gap between market price and the incentive price for new projects appearing to narrow.
Phil Burgert is managing editor of ResourceInvestor.com. He can be contacted at email@example.com