TORONTO (miningweekly.com) – Market analysts at Thomson Reuters GFMS expect insufficient production cutbacks, higher output from the progeny of the last mine supply boom and lower Chinese demand growth – as the country transitions to a more consumer-based economy – to result in 2016 being the fifth consecutive year of copper price decline.

According to the base case scenario outlined in the latest edition of the ‘GFMS Copper Survey 2016’, analysts expected mine production to grow in the next three years, albeit at a slower pace than in the recent past, as miners continued to deliver on investments made during the boom years.

World mine production was up 3.5% in 2015, compared with a 2.1% rise in 2014, with the strongest growth seen from South America and Asia, excluding China.

For 2016, GFMS expected the copper market to see a surplus of at least 150 000 t, with the same expected for 2017, as improving demand growth countered rising mine and refined production. GFMS’s base case scenario also expected a surplus in 2018.

This would filter through to higher refined output, which was estimated to grow by an average of 2.1% in the next three years. With an estimated 400 000 t/y of copper smelting capacity ramped up towards the end of last year, GFMS expected a further addition of smelting capacity to enter the markets this year.

“Our base case forecasts moderate global gross domestic production (GDP) growth of 2.7% on average in the next three years. Consumption continues to be heavily reliant on China, with a forecast global share of 46% in 2018, a touch higher than 45.5% in 2015,” stated analysts.

China’s copper consumption growth, however, was expected to slow down to an average of 3.2% a year. According to the survey, power network investments in China would remain an important growth driver, but weaker activity in the property construction sector would partly offset this.

With production exceeding consumption throughout GFMS’s forecast horizon, the copper market was expected to remain in a surplus, albeit at a declining rate with less than 60 000 t by 2018. Total stocks, measured in terms of weekly consumption, were estimated to reach 6.6 weeks by the end of the forecast horizon.

While it was not a surprise that forecast intensity of copper use in China was declining, the projected falls for Russia and India were more of a concern, noted GFMS. In Brazil, meanwhile, levels were expected to remain relatively flat.

GFMS also noted that on a macroeconomic scale, the global value of exports as reported by the International Monetary Fund had been trending lower since the start of 2012. In August 2015, the value declined by 13.8% year-on-year, the second-greatest fall since January 1958. However, despite the January 2016 reading having improved, it still remained at a negative 7.2%, with the overall trend remaining downwards, analysts advised.

“Our concern is that the US economy will not be able to withstand the effects of slowing global GDP growth and global exports and that, as a result, the US will ultimately move into a recession,” the report advised.

Copper prices had already fallen dramatically, being down by 6% in 2013, 14% in 2014 and 28% in 2015, and that was without the assistance of recession in the US, which, should the US go into another recession, spelled more downside for the red metal.

“Bearing in mind demand growth consistently below 3%, compared with circa 4% as recently as 2014, the transition to a sustained deficit market will now extend beyond our three-year forecast horizon to around the turn of the decade.

“Even so, there is no doubting that the current low price environment is sowing the seeds for the next boom as projects are shelved, delayed, sold or abandoned completely."