Copper, aluminium supply seen shrinking over next two years

[LONDON] The global copper market oversupply is expected to shrink this year and next, helping cushion prices of an industrial metal that has suffered due to slowing growth in top consumer China, a Reuters poll showed.

In a prediction that could signal a reversal of chronic oversupply, the poll also showed the aluminium market could post its first deficit in nine years.

Supplies are projected to remain scarce overall within the base metals complex, with all the metals - except copper - expected to register a deficit over the next two years.

Analysts began the year on a bearish footing, with forecasts for all six base metals slashed from estimates in October.

Some 34 market participants surveyed over the last three weeks expect cash copper prices to average US$6,371.70 a tonne this year, down 5 per cent from 2015 forecasts in a previous poll. In 2016, prices are seen rising to US$6,813.

The poll showed analysts expect the copper market to have a surplus of 221,000 tonnes this year, compared with a surplus of 350,000 tonnes forecast previously in October. In 2016, the surplus is seen narrowing to 200,000 tonnes.

"We expect a small surplus in the refined copper market this year, which means it will be vulnerable to supply disruptions,"said Gayle Berry, an analyst at Jefferies Bache.

"With 45 per cent of supply growth coming from greenfield projects and 15 per cent of production with labour contracts due for renewal the risk of disruption is high."

Several mining companies have also cut their expected 2015 copper production, mainly for geological or technical reasons.

Global miner Rio Tinto has trimmed expected 2015 output at its Kennecott US operation by about 100,000 tonnes, while BHP Billiton has cut around 150,000 tonnes from forecast production at Escondida in Chile, the world's largest copper mine, according to analysts.

Concerns about economic growth and demand for metals in China, which makes up 40 per cent of global refined copper demand, has kept the pressure on prices.

The metal is something of an economic bellwether; it is used mainly in building construction, as well as in power generation and transmission and in electronics.

Copper hit 5-1/2 year lows of US$5,339.50 this week, having notched its biggest one-day drop since October 2011 in the previous week. Prices are still down 13 per cent on the year.

Some 33 analysts expect aluminium prices to average US$1,965 a tonne this year, 1.8 per cent lower than in previous forecasts, and the smallest downward revision within the base metals complex this quarter.

Healthy demand from the automotive and aerospace industries, and falling output outside China are expected to edge the market into a 54,500-tonne deficit this year, compared with a surplus of 38,500 predicted for 2014 in the October poll.

In the previous poll, analysts had predicted a deficit of 102,500 tonnes for this year. In 2016 the deficit is seen rising to 125,000 tonnes.

Supporting the view of a tightening market, stocks in London Metal Exchange-registered warehouses have also steadily dropped, with inventories down by a fourth since early 2014.

"We forecast US$1,800 a tonne a year ago but can see growing aluminium demand. We hope new Chinese production is balanced by new demand and by the closure of higher cost and polluting production," SP Angel analysts said in a note to Reuters.

REUTERS