LONDON A growing copper surplus is the result of rising supply rather than slowing demand, but it is still likely to be marginal and could be easily reversed if projects experience problems, according to Antofagasta Plc chief executive officer Diego Hernandez.
Hernandez said the surplus, which will emerge during the fourth quarter and last into the next couple of years, will be smaller than expected and probably marginal. "Itll be less than 200,000 tonnes," he told AMM. "If China rebuilds its inventories or consumes just a little more, we would have a quite tight supply-demand balance for the full year."
The larger surplus is due to an increase in supply, Hernandez said. "There are new projects, some greenfield projects, but these could have some delays or problems, so I think the surplus will be very small this year. Next year some projects will be on time, and others are more doubtful." But the market will tighten in 2016, he said.
According to Hernandez, Chinese demand for copper is experiencing a slight pickup that has been a pleasant surprise, given market expectations for a broader economic slowdown there throughout the year.
"We dont expect any copper demand growth in Europe, although the decline there has reached its bottom, and the U.S. is slowly picking up, with some positive signs of demand," he said. "But overall, the increase in demand will come from China and other emerging economies, although the latter are smaller markets."
Hernandez said that treatment and refining charges (TCs/RCs) are quite high currently but not yet high enough for Antofagasta to contemplate investing in its own new smelting capacity. "Its too early to think about (investing in a smelter), but certainly if TCs are not driven by supply-demand we have to think about it," he said.
High premiums are related, in part, to the warehousing queues, although only on a very short-term basis, Hernandez said. "If you have inventories locked in a warehouse, its that amount and thats it."
Hernandez said that being able to establish the size of copper inventories that are off warrant is one of the trickiest issues facing the copper industry, along with how much scrap is available to the market, which is "almost impossible" to predict.
"Scrap availability fluctuates depending on the copper price, and I think the market is adjusting first to scrap," he said. "For instance, one of the reasons why China has been buying more cathode is because (it) couldnt get the scrap."