LME WEEK 2016: Sentiment turns bullish for copper in 2017

Sentiment is bullish for the copper market for the coming year amid possible supply strain from the mining side and higher-than-expected demand from China, while expectations for lower processing fees for copper concentrate are growing.

The main drivers of this bullish sentiment are slower than planned new mining capacities and the falling grade of copper from major mines, which will eat away at the supply surplus of recent years.

Freeport in an interview with Metal Bulletin this week said it expects disruptions to mine supply to be more substantial than seen so far in 2016, and that market will begin to tighten ahead of a “very severe” deficit that will emerge in 2018

Disruption at Las Bambas in October 2016, when local residents blocked the main access road to the copper mine for the funeral of a protester, have raised concerns over supply.

The road, which is used by Las Bambas’ trucks to transport copper out of the Apurimac region, was blocked by locals who were protesting the impact that transporting the copper was having on surrounding areas when Quintino Cereceda Huisa was shot dead by police.

Protests and transport blockades at Las Bambas also raised concerns about stable supply from new mines in Peru.

The next three months could be critical in calming tensions in the region - the government will need to start to deliver on pledges it has made to support the local community and minimise disruptions arising from the development of the massive mine, one copper miner active in Peru told Metal Bulletin.

The word “surplus” was barely mentioned in talks with buyers and sellers at LME Week in London.

“It may be too much to say ‘tight’, but we think it will be at least a ‘balanced’ market,” one smelting source said.

The fall in the grade of copper mined at existing mines has also boosted bullish market sentiment. For example, the copper grade at Escondida, the world’s largest copper mine, declined from 30% to 28% this year.

“Many projects were delayed due to low prices; we don’t see any big projects starting next year,” one concentrate trading source said.

The London Metal Exchange three-month daily official copper price was $4,888-4,889 on Wednesday November 2, down by 5.19% on the midpoint year-on-year.

Expectations over 2017 treatment and refining charges before LME Week polled by Metal Bulletin was $95-102 per tonne and 9.5-10.2 cents per lb, while talks over the benchmark were revised to the low $90s to high $90s during the week. Fewer people believe benchmark for the coming year will touch a three-digit number.

China’s demand for copper defies expectation
China’s copper demand during 2016 surpassed most people’s expectations after strong performance from both property-related and automotive sectors, especially in new energy vehicles.

“Everyone was talking about a 2-3% rise [in copper demand] at the beginning of this year, but the number we see now for China’s apparent copper demand is likely to reach 7% this year,” one bank analyst told Metal Bulletin.

“Because of Beijing’s guidance in the 13th five-year plan, most people revised their estimates of China’s copper consumption in 2017 to about 4-5%,” the analyst added.

China’s Ministry of Industry and Information Technology in mid-October predicted that the country’s apparent consumption of refined copper will rise at an annual average rate of 3.3% to 13.5 million tonnes in 2020 from 11.47 million tonnes in 2015. This compares with China’s average annual demand growth rate of 8.9% over 2010-2015.

One hedge fund source expressed confidence in China’s copper demand during the first half of 2017 mainly supported by the strong property market during the third quarter of 2016.

“Copper demand usually lags by half a year behind the booming sales of the housing market, so demand in the first half of next year will certainly be strong. We have some concerns over the second half, but we are not that worried,” one hedge fund manager said.

During China’s Nonferrous Metals Forum held in London this week, Zhang Ronghui, chief analyst at China Minmetals, told delegates that demand from urbanisation, power and electric vehicles will be the main drivers of China’s copper demand.

A poll by Macquarie of around 200 delegates from the metals and mining industry shows that more than half of respondents expect copper prices to move above $4,900 per tonne by this time next year, including 33% who predicted it will rise to $5,200 per tonne.

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