Copper: Chinese stimulus wanes, while supply disruptions an ongoing theme – NAB

Research Team at NAB, notes that the copper prices fluctuated around $4800/t over the past quarter and prices are expected to continue trading range bound as the support from Chinese stimulus wanes, while mined supply is also likely to be lower than previously expected.

Key Quotes

“Chinse imports of copper surged earlier this year but have since fallen back. As the effects of the earlier stimulus starting to wane, the economy slowed down from the second half of the year, largely driven by weaker activity in the construction sector. Overall our forecasts for Chinese growth has remained unchanged, at 6.6% and 6.5% in 2016 and 2017.

Investor positioning has turned more upbeat on copper, supporting prices in the short time. Meanwhile, the US Fed rate hike has not eventuated yet, meaning the stabilisation of China-US interest rate differential are sustaining the profitability of the large copper carry trades, for now.

On the supply side, global mine production continues to increase, despite ongoing supply disruptions. The International Copper Study Group estimates world mine production to have increased by 4.5% in 1H 2016 compared to 1H 2015. The increase was mainly driven by a 50% rise in Peruvian output as new and expanded capacity has been added. This was partly offset by temporary production cuts in Chile and DRC. Guidance from companies indicates mined supply for 2016 is likely to be lower than expected, due to factors including ore processing challenges and weather related disruptions. Mine accidents also saw production suspended at two major mines in Chile and Poland.

Overall, we forecast a largely balanced market for 2016 and 2017, with prices averaging $4800/t.”