Copper to rise on strong demand, supply constraints
Feb 4, 2015
Copper prices will begin to improve from current weak levels in Q2 helped by strong fundamentals, Southern Copper(SCC) CFO Raúl Jacob said.
The red metal averaged US$2.638/lb in January in London, down from the previous month's US$2.913/lb and a 2014 average of US$3.111/lb.
The decline is due to technical reasons linked to falling oil prices and does not reflect copper fundamentals, Jacob told a conference call to discuss the company's Q4 results.
"We believe current relative softness in copper prices will start to change as we move into the second quarter of 2015, as demand is consistently improving," he said.
In particular, demand will be fueled by US economic growth and higher consumption in Western Europe, while demand in China is expected to improve by about 4% this year as investment more than offsets a housing slowdown, Jacob said.
SUPPLY CONSTRAINTS
Factors such as technical issues and labor unrest at existing mines and the delayed start-up of new projects will limit supply growth, the CFO added.
In particular, 10% of Chile's total copper output of about 5.8Mt could be at risk due to current price weakness, Jacob said, while higher royalties in Zambia may also hit global output while high quality scrap supply will decline.
"Current prices are not sufficient to promote the necessary supply growth, improving long-term fundamentals for the copper market," Jacob said.
While some analysts are predicting a supply surplus in 2015, estimates of the size of the surplus have dropped significantly, he added, and SCC expects a balanced market for the year.
SCC, a subsidiary of Grupo México, is the biggest copper producer in Peru and Mexico. Spot copper closed at US$2.589/lb on the LME on Wednesday.
