The International Copper Study Group (ICSG), after meeting this week, believes that the global copper market will move from a basic balance between supply and demand in 2023 to a surplus supply next year.
In 2024, the global copper market will be oversupplied by 467,000 tonnes, significantly higher than the 297,000 tonnes surplus forecast by the agency in April.
The ICSG still sees a shortfall in the global market this year, but the shortfall has been slashed from a forecast of 114,000 tonnes in April to 27,000 tonnes, a tiny amount for a global market of 26 million tonnes.
The agency's statisticians stressed that these forecasts are only short-term forecasts, and stressed that "due to a number of unforeseen factors, the actual market supply and demand balance has not been consistent with the ICSG's forecasts recently."
The trend behind the headlines is more pronounced, with two prominent factors in the latest data being weak demand in the West and strong growth in Chinese production.
Demand is weak in the West, and China (in terms of consumption) is growing
At its April meeting, the ICSG forecast that copper demand in countries other than China would grow by 1.6% this year, up slightly from just 0.4% in 2022.
In the past six months alone, there has been a distinctly bearish picture. The rest of the world, excluding China, is expected to consume 1 per cent less copper this year than last, "mainly due to lower refined copper consumption in the European Union and North American countries", the ICSG said.
The emphasis on "by consumption" is because the ICSG can only estimate China using publicly available data on domestic production, net imports and physical inventories.
However, its estimates are in line with the copper market consensus that Chinese demand has picked up unexpectedly this year. Copper's demand in the power and electric vehicle markets appears to have cushioned the metal from sluggish manufacturing demand over the past half year.
High interest rates are constraining manufacturing activity in the US and Europe. The latest PMI indicates that China's industrial recovery will continue to be the core factor driving higher global copper demand.
The ICSG acknowledged that "the global economic outlook is not optimistic", but remained optimistic about next year. The agency only revised down the growth rate of global copper consumption in 2024 to 2.7% from 2.8%.
"The expected recovery in manufacturing, continued progress in the energy transition and the formation of new (semi-finished) production capacity in various countries will support the growth of world refined copper product consumption in 2024," the report said.
Refined copper production rose
Copper consumption growth next year will still lag behind the 4.6 percent growth in global refined copper.
Indeed, a rapid rise in output has already begun. The ICSG has revised refined copper production growth to 3.8% in 2023, up from 2.6% last year.
Like demand, growth in metal production depends on China, which will continue to expand its copper smelting and refining capacity.
Operational restrictions and smelter maintenance in Chile, Indonesia, Sweden and the United States will affect copper production in these countries.
But Chinese smelter output will rise. In the first eight months of 2023, China's refined copper production rose 11.5 per cent from a year earlier, according to the Shanghai Metal Market.
New smelters and expansion of existing plants in Indonesia, India and the US will add some capacity next year.
In addition, due to investment in new recycled copper smelters, the ICSG estimates that recycled copper production will also grow this year and next.
Copper under pressure
The ICSG's estimate of a market surplus next year has spooked the market. But so is its assessment that supply and demand will be roughly in balance this year.
Most analysts expect a surplus in both 2023 and 2024. It is worth noting that the ICSG's monthly bulletin shows that the global copper market has a clear surplus of 215,000 tons in the first seven months of 2023.
If western demand remains weak by the end of the year, it is unclear whether the surplus in the first half of the year will translate into the small shortfall the agency expects for the full year.
While the timing may be in doubt, the ICSG's latest forecast adjustment underscores the consensus that the copper market is entering a period of rapid production growth and uncertain demand from countries other than China.
A combination of weak factors has weighed on copper prices, which this week fell below $8,000 a tonne for the first time since May to close at $7,940.
It is well known that copper will play an important role in the energy transition, but the current short-term oversupply will weigh on the market.
