Expect a copper bounce

Copper has hit another six-year low at below $4,500 a tonne. It has lost 12% in November alone, and 55% since its record high in 2011. It has faced “a perfect storm”, says Dane Davis of Barclays. The dollar rose to a 12-year high last week, squeezing raw materials prices. Meanwhile, Codelco, a low-cost producer accounting for 10% of global production, said it would focus on cutting costs rather than production.

That reinforced concern over a glut of copper: China’s growth saw producers boost output, but mines can take almost ten years to start producing. So supply needed a decade ago is only arriving now, says Jon Yeomans in The Sunday Telegraph – just as demand has cooled.

China accounts for around 45% of global copper demand, with annual demand soaring from two million tonnes in 2000 to 14 million in 2014. So far, the production cuts announced by companies in response to weak prices – comprising 3% of total supply, according to Morgan Stanley – aren’t enough to counteract weaker demand, says Helen Thomas in The Wall Street Journal.

Since the end of 2014, for instance, JP Morgan has trimmed its copper demand forecasts by twice as much as its estimates of supply cuts. And Barclays’ Kevin Norrish notes that another wave of supply is due to hit the market next year, so even if the market balances in the short term, it will prove only “a brief reprieve”.

The gloom looks overdone, says Capital Economics. The pivotal factor for copper is China, whose slowdown should have run its course by now, with recent stimulus measures, including lower interest rates, due to kick in soon. Note that copper import volumes have ticked up of late. A rally may be in the offing.