Global copper markets will be oversupplied for at least two years, executives at some of the world’s major producers of the metal and traders said recently, casting doubt on the chances of a prolonged rally in prices.
That tempered assessment of the market at an industry conference in Shanghai came after benchmark copper prices last week recorded their biggest weekly gain since 2011, largely fuelled by US President-elect Donald Trump’s promises of infrastructure spending.
“In 2017, it will still be a relatively oversupplied market. In 2018 it will not be better than 2017,” said Yuneng Wu, vice president of Jiangxi Copper Co, China’s largest copper producer.
Global markets for the metal, used in everything from wiring to construction, have been burdened by oversupply as mines ramp up output in places such as Chile and Zambia.
Some bullish traders and analysts had embraced last week’s rally as the first sign the market was poised for a prolonged bull run, ending a years-long rout that saw prices fall more than a third since July 2014 as demand growth in China faded.
But while prices may have bottomed out for now, they will not trade beyond $5 000 to 6 000 per tonne going into 2017, said Jinbi He, founder and president of Maike Metals Group, one of China’s top metals traders. Prices stood around $5 500 on Wednesday.
He also called on China’s government to control what he described as “overspeculation” in the local futures market, hit by volatile trading over the last week as it was whipsawed by speculative cash.
“We want a market that is supervised rationally and reasonably, otherwise the market will be hurt,” he said.
Jiangxi Copper’s Wu described recent market moves as “irrational”.
“I’ve never seen this rocketing of prices … Some irrational factors were driving up the prices,” he said in a panel discussion at the Metal Bulletin Cesco copper conference.
China Minmetals Non-Ferrous Metals Co general manager Xiaoyu Gao told Reuters on the sidelines of the conference that there would probably be “more volatility and more uncertainty” in 2017.
Meanwhile, Duncan Wanbald, head of base metals and minerals at Anglo American, said he only saw a “slow” increase in prices over the next two years before a deficit emerges in 2019.
But other executives said that China’s mammoth infrastructure spending would translate into higher manufacturing demand for 2017, also buttressed by supply-side reforms, pushing up the floor for copper prices.
A lack of discoveries of major new deposits, declining ore grades at existing mines, tougher environmental regulation on mining and higher costs will also remain a major long-term challenges for the industry, executives said.