Copper: Market deficits expected in 2018 – NAB

According to analysts at NAB, Chinese copper demand has proven resilient and is still expected to grow, albeit at a slower rate.

Key Quotes

“We forecast Chinese GDP growth at 6.5% and 6.25% for 2018 and 2019 respectively, however the economy will continue its transition towards consumption-led growth. Industrial production grew by 6.6% yoy in September and the manufacturing PMIs remained at expansionary levels. However, new construction starts have slowed in recent months and are well off the peaks recorded in June, and house sales have also softened. The demand from housing construction is likely to weaken over time but copper will remain in demand for many other aspects of modern life while infrastructure investment in India and the US should also support copper demand.”

“The outlook for concentrates supply is looking better for 2018 compared to a disruption-impacted 2017. Output should recover as labour disputes have been resolved, while restarts in the Democratic Republic of Congo and Zambia and to a lesser extent additional output from new projects/expansions should see world mine production increase.” 

“While treatment and refining charges (TC/RC) remain subdued, the latest guidelines set by the China Smelter Purchase Team for December has been raised from September levels, indicating improved concentrates supply. Historically China has increased scrap imports when concentrates supply was tight, but recent restrictions on scrap imports on environmental grounds have seen scrap imports levels subdued.”

“Overall, the expected surplus in 2017 did not eventuate and the International Copper Study Group forecasts a global refined deficit of 151k tonnes in 2017 and a smaller deficit of 104k in 2018. We expect some pullback in prices in early 2018 from current high levels, with investors likely becoming less  bullish, USD appreciation putting downward  pressure on copper prices, and as industrial  demand from China continues to moderate.”