According to the International Copper Research Organization (ICSG), which held a meeting in Lisbon this week, the copper market will transition from a supply and demand balance in 2023 to a surplus supply next year.
Production is expected to exceed usage by 467,000 tonnes by 2024, a sharp upward revision from the 297,000 tonnes surplus projected at the group's last meeting in April.
The group still sees a shortage in the market this year, but its April forecast of 114,000 tonnes has been cut to just 27,000 tonnes, a paltry figure compared with a global market of 26m tonnes.
The group's statisticians stressed that the forecasts are timely snapshots, noting that "recent actual market balance results have deviated from ICSG market balance forecasts due to unforeseen developments".
The trends behind the headlines may be more important, with the two standouts in the latest data being the weakness of Western demand and the strength of Chinese production.
While the West is slumping, China is (ostensibly) booming
When the ICSG last met in April, demand outside China was expected to grow by 1.6 per cent this year and just 0.4 per cent in 2022.
Fast forward six months and the prognosis is much more pessimistic. The ICSG said it now expects copper use outside of China to fall 1.0 per cent from last year, "mainly driven by lower refining use in EU countries and North America".
But weaker demand in the West has been matched by stronger demand in China, where apparent use is expected to grow 4.3 percent this year.
The word "evident" is emphasized because the ICSG only uses reported data such as domestic production, net trade and changes in tangible inventories to estimate China's situation.
However, its assessment is in line with the copper market consensus that Chinese demand has risen unexpectedly this year. Over the past six months, copper's use in green transition industries such as power and electric vehicles appears to have cushioning the metal from the overall manufacturing downturn.
The latest purchasing managers' index suggests factory activity has picked up and that China will continue to be the core driver of global copper demand as high interest rates take their toll on manufacturing activity in Europe and the United States.
The ICSG acknowledged that the "global economic outlook is challenging" but remained optimistic about next year. The agency only slightly lowered its forecast for global energy use growth in 2024 to 2.7% from 2.8%.
"The expected improvement in manufacturing activity, the ongoing energy transition, and the development of new [semi-finished goods] capacity in countries should support higher growth in global refining use in 2024," the report said.
Production of refined oil products surged
Global refined copper production is expected to grow by 4.6 percent next year, still outpacing expected usage growth.
In fact, a surge in production has already begun. The ICSG has raised its 2023 refining production growth forecast to 3.8% from 2.6% in April.
As well as demand, the rise in metals production is due to China, which continues to expand its smelting and refining capacity.
Operational restrictions and smelter maintenance disruptions in Chile, Indonesia, Sweden and the United States will limit copper production outside China this year.
But Chinese smelters are aggressively ramping up production. According to Shanghai Metal Market, a local data provider, in the first eight months of 2023, national output rose 11.5 percent year on year.
There will be more of the same next year with new smelters and capacity expansions in Indonesia, India and the United States.
The ICSG also expects the amount of copper produced from recyclable materials to increase both this year and next due to investments in new secondary smelters and refineries.
Under pressure
The scale of the oversupply forecast by the ICSG next year surprised the market. But so is its assessment that supply and demand will be roughly in balance this year.
Most analysts expect surpluses in 2023 and 2024. Notably, the ICSG's most recent monthly bulletin shows that the global copper market has a production surplus of up to 215,000 tonnes in the first seven months of 2023.
If demand from Western countries remains weak by the end of the year, it is unclear how excess production in the first half of the year will disappear, producing the small deficit Opec expects for the full year.
But while the timing of the release may be controversial, the latest ICSG data adds to a growing consensus that the copper market is entering a period of rapid production growth and uncertain demand from the world outside China.
It is this bearish combination that has put pressure on copper, which this week broke above the $8,000 a tonne level for the first time since May, having last traded at $7,94.
