Supply glut will put a cap on copper’s rally

The red metal has risen by 10% in the past six months and now fetches just over $8,045 a tonne. But don’t expect it to get much further. The key reason copper has jumped of late is better data in China, which accounts for 40% of global demand.

Beijing has approved over $150bn in copper-intensive infrastructure projects, says David Winning in Barron’s. But this hasn’t led to higher demand for copper in China, because stockpiles are already enormous. Deutsche Bank reckons that over one million tonnes of copper are stored in Chinese warehouses, up from 300,000 in 2011.

But it’s not just Chinese supply the market will have to grapple with. According to the International Copper Study Group, global refined copper output will grow by 7.2% this year to a record 21.6 million tonnes, as new mines open in Asia and South America. Output hasn’t expanded this quickly for two decades, says Winning.

Meanwhile, as we pointed out a fortnight ago, demand is unlikely to rise much further given that the Chinese authorities will be reluctant to rekindle the lending frenzy, while the rest of the world’s economic outlook is subdued. No wonder, then, that BNP Paribas expects prices to fall to around $7,500 by the fourth quarter of 2013.

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