03/04/2017 07:50 AST
Copper bulls ruled the market from late October to mid-February as prices surged on rebounding Chinese demand and mine disruptions. Now, signs of oversupply are waking up the bears.
When asked about price prospects for the next six months, 15 analysts and traders surveyed by Bloomberg News were evenly split between bears and bulls, with one neutral. In China, bets on price declines outnumbered wagers on gains by the most since at least December 19, data on the Shanghai Futures Exchange show, while money managers in London cut their bullish bets to the smallest in five months. A separate weekly poll on the metal’s immediate prospects turned bullish from mixed last week.
Divided opinions on copper’s next move set the stage for the industry’s annual gathering in Santiago next week. Typically upbeat producers will be pinning their near-term hopes on a seasonal rebound in demand while the bears will point to the end of a six-week strike at the Escondida mine at a time of rising inventories and an increase in scrap supply.
“For copper, you can’t get too aggressive either way,” Dane Davis, an analyst at Barclays in New York, said in a telephone interview. “You can’t short the metal too much because of the supply side, and you can’t get long too much because the demand conditions aren’t looking great on a six-month basis.”
Combined inventories tracked by exchanges in Shanghai, London and New York have surged more than a third this year and are near the highest since 2013, supporting the argument that the market will remain oversupplied even after disruptions at Escondida and the Grasberg mine in Indonesia. Premiums paid for copper delivered in Yangshan port, near Shanghai, are approaching the lowest level in four years, suggesting weak imports seen so far in China this year won’t let up.
While forecasts in the Bloomberg six-month survey range from $4,409 to $7,000 a metric ton, most respondents, including the bears, don’t foresee prices collapsing.
In February, the metal used in wiring and plumbing climbed to $6,204 on the London Metal Exchange, the highest since May 2015, as Freeport-McMoRan suspended operations at Grasberg, while workers at BHP Billiton’s Escondida remained on strike.
While the rally has faltered, Chile’s copper agency raised its 2017 price forecast to $2.50 to $2.55, from $2.40 in January.
The agency estimates the Escondida strike that lasted six weeks will curb the company’s production by as much as 230,000 tonnes. Grasberg’s output could drop to as little as 230,000 tonnes, missing the company’s January guidance of 650,000 tonnes, should Freeport not secure an export license this year, Citigroup analysts including David Wilson wrote in a note March 28.
Demand will rise 2.4% this year to 23.79mn tonnes from a year earlier, Barclays forecast in a report last week. Refined copper production probably will grow 1.2% to 23.685mn tonnes this year, it said.
About 1.5mn tonnes of mining capacity has labour contracts that are still up for renewal this year, Davis said. Escondida workers invoked a provision allowing them to return to work using their old contract for 18 months, which sets up another round of wage negotiations next year.
Gulf Times
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