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The World is Not About to be Swamped by Copper

By Jim Williams

Citigroup, Inc. says growth in copper supply will fall significantly short of demand through the end of this decade. Citi’s announcement has some experts in the industry wondering how high the price of copper may go over the next few years.

A group of analysts compiled a note Tuesday predicting global copper mine supply will be 1 million metric tons a year higher by the end of the decade. That may sound like a lot, but it is less than the 1.6 million tons of demand growth that Citigroup predicts. The red metal has risen only 1.6 percent this year as mine supply increased in the first half.

Any boost to the price of copper is “likely to be temporary in nature,” the analysts wrote. “We do not believe such growth represents a significant wave of supply.”

Citigroup backs that theory by saying mine output won’t grow quickly enough through 2020 after years of spending cuts, constrained project funding and a decline in ore grades. “Without already agreed funding, copper projects are, in our view, unlikely to reach production this decade given the current low price levels and capital constrained environment,” the analysts concluded.

Softer dollar continues to support copper
The weaker dollar has been supporting copper prices so far this week, as seen in the chart below from COMEX. However, the dollar’s support is limited by China’s weaker outlook. Considering that China is the largest copper consumer, China’s economic releases will impact copper’s demand and price trends. Recently, the weaker-than-expected Chinese economic data are weighing on copper prices.

Description: Copper, Gold, and Silver Are Strong Early on August 16

Weaker than expected data from China continues to have an impact on the price of copper as well.

The pace of fixed-asset investment in China slipped to 8.1 percent in January to July, the weakest since December 1999. China’s industrial production in July also slowed, as did imports and exports and bank lending, while the property sector also showed signs of struggling.

“What matters to the copper demand outlook is not just whether China grows, but how strongly it grows,” Barclays analysts said in a note.

We will keep an eye on China and all things copper and keep you updated right here each week.


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