LONDON Copper prices are likely to fall in 2014, pressured by rising stocks and production, as well as a strengthening U.S. dollar, Citigroup Inc. analysts said in a note Nov. 18.
"We forecast (London Metal Exchange) three-month prices to average $6,650 per tonne for the year as a whole, and lows of below $6,400 per tonne to be seen before year-end," the analysts said. "However, looking further forward, the significant cutting back of the future copper project pipeline suggests that a price of $8,000 per tonne could be achieved by 2018."
Their analysis suggests that the present run of copper supply growth will peak between 2013 and 2014, and begin to dwindle markedly in 2016 and 2017.
"The slowing of mine supply growth rates should be exacerbated by the postponement of projects, which would have provided an additional 1.9 million tonnes of new mine supply in the second half of the decade," the analysts said.
Inventory levels in exchange warehouses, however, have fallen by more than 275,000 tonnes from the high of about 935,000 tonnes at the end of June, the analysts said.
"Current estimates for inventory held in Chinas bonded warehouse network are also down by about 400,000 tonnes since the beginning of the year," they said.
"One could point to rising Chinese imports as evidence that Chinese real demand is (rising). However, looking at Chinese sectors such as cabling and wire rod production does not present such a positive picture," the analysts said. "We also understand that the high cost of borrowing seen in China since late April has (caused a rise) in onshore financing demand, whereby corporates use copper as a collateral tool to reduce interest rates on loans."
This has intensified the draw from LME-bonded and Shanghai Futures Exchange (SHFE) warehouses, they said.
Beyond this, SHFE stock draws have been driven by traders also shifting inventories to off-exchange warehouses to benefit from lower rental costsa trend that has been observed across all base metals, they said.
On the supply side, the copper industry is now in its fifth upturn since the mid-1970s, according to New York-based Citigroup.
The analysts are now forecasting copper concentrate supply growth will average almost 8 percent this year. "We expect between 850,000 and 1 million tonnes of additional concentrate production to be added to global production levels this year," they said.
Global refined copper production is expected to accelerate further in 2014, with growth of 4.4 percent compared with 3.2 percent this year.
A version of this article was first published in AMM sister publication Metal Bulletin.