Copper prices have slid by around 10% this year to $6,700 a tonne. Since 2011, as Longview Economics points out, a structural bear market has been underway, with prices down 32%, and the outlook remains negative.
Chinese demand growth edged down last year and this trend should endure. Half of China’s copper demand stems from the construction and infrastructure sectors, and a slowdown in real-estate construction is underway.
Inventories of unsold properties are at a 12-year high and prices and transaction volumes are heading south, foreshadowing fewer housing starts and hence lower copper demand.
The government is clamping down on credit-fuelled investment spending in a bid to promote consumption. At the same time, mined supply is expanding. Last year it rose by 8%, its fastest pace since 1996, and it is expected to grow by 5% this year.
The size of the market surplus over the next two years will take investors by surprise, says Longview.
A clampdown by Chinese authorities on the use of copper as collateral for loans looks set to release more onto the market, pressuring prices further. By the end of the third quarter, reckons Capital Economics, copper will be trading at about $6,000.