Last updated: October 9, 2013 7:11 pm

Supply of copper set to outstrip demand

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Leading copper miners and traders have said they expect supply to outstrip demand next year as a wave of new projects begins production, a development that suggests prices will continue falling for the benchmark industrial metal.

The price of copper, used in electrical wiring, has fallen 30 per cent from record highs in 2011 amid slowing Chinese demand and rising supply.

The shift into surplus marks a dramatic change from market trends of the past decade when surging Chinese growth combined with chronic mine underperformance to drive copper prices higher. The metal became emblematic of the so-called “commodities supercycle” and triggered windfall profits for miners such as Codelco and Freeport-McMoRan and major exporters such as Chile, Peru and Zambia.

But Hernan de Solminihac, Chilean mining minister, predicted that next year “prices will drop a little” because of an increase in supply, with new projects in Chile, Peru, Indonesia and Mongolia all adding to global output. Thomas Keller, chief executive of Codelco, the world’s largest copper miner, said he expected the market to see “a small surplus as a number of new projects come into production”.

The implication is likely to be lower copper prices, said Gu Liangmin, head of copper at Minmetals, the Chinese state-owned mining and trading group. He predicted that the metal would trade in a range of $6,500-$7,500 a tonne next year, compared to current prices of $7,100, already down 10 per cent so far this year.

The expectation of a shift into surplus in the copper market was echoed by many of the traders, analysts and hedge fund managers assembled in London for LME Week, the largest annual gathering of the metals and mining industry. For the first time since 2008, investors polled by Macquarie did not pick copper as their favourite metal for next year.

However, few expect a collapse in prices, as a recovering global economy lifts copper demand. “The surplus we are forecasting is very modest,” Mr Keller of Codelco said, predicting a “really marginal” oversupply of 300,000-400,000 tonnes, compared to annual consumption of more than 20m tonnes.

“We should continue to see prices moving around current levels,” he said.

Indeed, not everyone believes that the oversupply will be long-lived: the mining industry has a long record of under-delivering on promised production.

Mr de Solminihac said the trajectory for copper prices beyond next year would depend on how much of the expected supply really materialises – a significant uncertainty as miners review their spending plans.

Diego Hernández, chief executive of London-listed copper miner Antofagasta, predicted that after two years of surplus in 2014 and 2015 the copper market would return to a “tight supply-demand balance”.

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