Market and product
Increasing output losses to widen copper deficit
Copper is presently facing a very conspicuous market deficit. The International Copper Study Group points out to the 60000 tonne deficit in the first two months of 2011 as opposed to an 119000 tonne surplus during the corresponding time last year. The group also projects the deficit this year to climb to 377000 tonnes.
The deficit that has befallen the market is sure to widen as the year progresses, and will gather pace once the world economy will emerge out of the slowdown. This could be a potentially dangerous situation unless combated with steady supply to absorb the demand.
The emerging markets such as India and China are already a step ahead of their western counterparts and has its demand upped to almost pre-crisis levels, which in turn has paved way for more demand for the red metal. It has become imperative for producers to step up supply by the way of investing in new capacity and exploring new sites.
Chile, the world’s largest producer of copper, is of the opinion that the growing need for commodities is sure to offset any setbacks the market might face, “even if China’s economy slows” says Chilean Prime Minister Sebastian Pinera in an interview to Bloomberg. The successive monetary policy tightening measures undertaken by the government could be a potential slowdown factor of the Chinese economy.
Apart from the creeping deficit, copper market also faces structural problems such as weak ore grades and falling output at mines. According to the ICSG, copper mine growth seen in the first two months of 2011was a meagre 28000 tonnes, whereas apparent usage was up 17000 tonnes during the corresponding time. The ICSG also mentions a lag in smelter capacity relative to growth in mining production, which can tighten the market further. Few smelters to process the rising supply of concentrates will create tightness in the second link of the supply chain.
The market currently is on the path of recovery from the weakness that had inflicted commodities initially during the month. Even though, immediate dangers such as Chinese monetary policy, rising inflation and wobbling recovery in the west dogs the metal, but a market deficit to be to be left unnoticed.
