This year has started in “explosive fashion” for copper, with the three-month contract price on the London Metal Exchange falling to a record low of $5 340/t as of January 26, compared with $7 291/t a year earlier.

In its Copper Briefing Service (CBS), released last month, professional services firm SNL Metals & Mining notes that “bear raids by Chinese funds have, at least in part, been culpable for copper’s precipitous fall”.

Further, the CBS argues that the lack of any subsequent recovery in prices, in the context of copper’s generally benign fundamentals, is likely largely the result of the general nervousness surrounding the macroeconomic and broader commodities outlook.

The CBS notes that downgrades to global growth projections by the World Bank and the International Monetary Fund have “certainly” dented sentiment towards the commodities markets, which were already feeling the strain from the stronger dollar.

“Given recent developments, the potential for weaker copper demand has intensified, particularly owing to the fragility of the eurozone economy and the slowdown in the Chinese property sector.”

The CBS adds that severe winter storms in the US also threaten to reduce demand from its construction sector; therefore, it forecasts growth in global refined copper demand of only 2.8% this year and 3.3% in 2016.

Additionally, the CBS highlights that liquid stocks of the refined metal remain at low levels, and supply disruptions continue to be a feature of the market notably at diversified giant Rio Tinto’s Kennecott mine, in the US, global mining major BHP Billiton’s Escondida mine, in Chile, and Argentine miner Minera Alumbrera’s Bajo de la Alumbrera mine, in Argentina.
Moreover, the CBS points out that, in the current depressed economic climate, there are doubts around the extent of any surplus this year.

“There is potential for price-related cutbacks at the mine level, which has garnered much attention over recent weeks.”

However, the CBS says, with the notable exception of London-listed Acacia Mining’s, formerly African Barrick Gold, scheduled suspension of the 160 000 t/y production at its Lumwana mine, in Zambia, there have not
been any large-scale cuts to copper production on price-related
grounds to date.

The CBS expects a modest price recovery from what SNL considers an oversold market.

“The upside will remain constrained by weak global growth and modest market surpluses, which could lead to some further increases in total exchange stocks.

To date, these have increased by 85 000 t to 393 000 t, although they remain modest in a historical context. We forecast an
average copper price of $6 294/t this year and $6 519/t in 2016,” the CBS concludes.