NAB Group Economics September Commentary

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    Copper price was sitting at $5147/tonne on 31 August. Prices fell with the commodities complex, declining 6% in August to be 27% lower compared to a year ago.

    Global growth is running below trend, limiting the pace of expansion in commodity demand. In particular, the stock market meltdown in China and a softening in fixed investment spending are limiting demand for copper.

    Investor positioning has been mostly negative in 2015, but has reversed somewhat recently. It is possibly due to short traders taking profits in the price downturn but may well signal market rebalancing.

    Short term supply remains abundant. A small drawdown of Chinese bonded stocks was more than offset by inventory increases at the major exchanges. Both US and EU premiums remain low while Shanghai premium rose sharply from a historic low.

    We are still forecasting strong increases in copper supply over the next two years, with two new projects in Indonesia and Chile and production ramping up at several other sites. Supply growth is expected to peak in 2016, but could push back to 2017 due to a range of uncertainties including weather and strikes at mine sites.

    The International Copper Study Group forecasts world refined copper production to exceed apparent refined copper demand for both 2015 and 2016.

    Overall, in the short term downside risks remain with the weak global outlook, especially the slowdown in China, offsetting the support effects of lower energy prices and weaker commodity currencies. Prices are forecast to remain depressed in 2016 at around $5300/tonne as new capacity is added, however supply disruptions might remain an ongoing theme.

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