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Highlights

MI revised Cu forecast from deficit to surplus on pandemic concerns

Previous ICSG data indicated shrinking deficit in 2019

Pittsburgh — Depressed economic conditions are expected to push 2020 global refined copper supply into a surplus after a reported deficit in 2019 as the coronavirus pandemic pressures industrial metal demand, especially in China, S&P Global Market Intelligence analysts said Thursday.

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"On the supply side, China's output of copper cathode has been under pressure as some smelters trim output due to swelling inventories of by-product sulfuric acid, which has reduced storage capacity for new metals output," Market Intelligence analyst Jason Sappor said during a webinar panel discussion focusing on the pandemic's impact on metals markets.

"We have therefore forecast the global refined copper market to record a surplus of 22,000 mt in 2020 compared to our previous expectations of a 41,000 mt deficit," he said.

Market Intelligence analyst Thomas Rutland said the surplus would also be fueled by an expected 3.3% year-on-year decrease in Chinese copper demand to 11.1 million mt due to a drop in China's GDP growth forecast and lower-than-expected economic stimulus measures implemented by the Chinese government.

Recent data provided by the International Copper Study Group indicated that the deficit in the copper market from previous years had already shrunk in 2019.

ICSG data in March showed a deficit in the copper market of 340,000 mt in full-year 2019, down from a 390,000 mt deficit in 2018. The dwindling full-year deficit was accompanied by a copper surplus in December, according to the group's data.

Analysts with Commerzbank said the December surplus reported by the ICSG could preview continued reductions to the global copper deficit during 2020, even as mines and refining facilities reduce output amid the pandemic.

"Even though production in many places is being temporarily scaled back or indeed suspended completely due to the measures being implemented to contain coronavirus, it is nonetheless likely to far outstrip demand," Commerzbank analyst Daniel Briesemann said in a recent research report.

Copper prices down, but may recover in 2020 H2

While industrial metals prices are expected to have a challenging year, Sappor said prices may recover in the second half of 2020 if the pandemic peaks in the middle of the year.

"Metals prices are expected to be supported by stimulus measures from global central banks and governments, but Chinese stimulus is not expected to match the record 2009 fiscal stimulus of the global financial crisis given the country's continued focus on debt sustainability and financial stability," Sappor said.

As the copper market moves into surplus, Sappor said Market Intelligence had decreased its average 2020 copper price forecast to $5,850/mt from a previous forecast of roughly $6,100/mt as demand slows and as Chinese copper semi-fabricators operate at lower levels.

However, the Market Intelligence analysts said there were optimistic signs signaling a potential copper market rebound in the second half of the year.

"News that copper miners in Chile are considering cutting production amid coronavirus containment measures represents an upside risk to our price forecast," Sappor said.

Citing a forecast from S&P Global Ratings, Sappor said the Chinese economy is also expected to begin recovery in the second half of 2020 on the assumption that the pandemic will peak in the middle of year.

Rutland said Chinese copper consumption should significantly increase during the country's economic recovery period once the pandemic has reached its peaked.

"Given that China accounts for almost 50% of global refined copper demand, the positive signs surrounding the restart of economic activity in China supports our view that copper prices will rebound from July onwards," he said.

Like S&P Global Platts, S&P Global Market Intelligence and S&P Global Ratings are divisions of S&P Global Inc.