After falling to a five-year low of $4,327.5/tonne in mid January 2016, copper prices have since recovered, posting muted gains of 3.8 per cent so far. LME spot copper is trading at $4,886/tonne now, still down over 50 per cent from its mid-July 2011 highs of $9,818 per/tonne.

Nearly half of copper consumption finds usage in building and construction. With copper often considered by economists as a barometer of economic activity, demand for the brown metal is positively correlated to world GDP growth. According to World Bank data, world GDP growth trended lower from 4.3 per cent in 2010 to 2.5 per cent in 2015. While global growth for 2016 is projected at 2.4 per cent, it is expected to grow to 3 per cent by 2018. Economic activity in China, which is the largest consumer of copper (consumes over 40 per cent of global production of copper), has also slowed in recent years which, again, has weighed on the metal’s price The country’s GDP growth since 2010 fell from about 10 per cent to 6.7 per cent in June 2016 quarter. A deceleration in the country’s economic activity impacted the construction sector’s demand, thus hitting copper prices.

For the next six months at least, there may not be much upside in copper prices as demand grows at a slower pace and there are large excesses in the market.

China’s copper imports increased over 20 per cent in the January-June period this year over the same time last year, sending some positive vibes through the market. But this momentum may not hold.

Increasing supplies

The global mine output in copper is expected to increase as new capacities put up during the last few years are reaching full capacity. According to Australian government’s Resources and Energy Quarterly, June 2016 world mined copper production is estimated to increase to 21 million tonnes in 2016, up 8 per cent when compared to 2015.

In the first four months of the current year, copper production is up 5 per cent to 6.5 million tonnes, according to the same report. This was contributed largely by higher output from Peru and Kazakhstan.

From January to April this year, Peru’s output grew more than 50 per cent year-on-year (2,39,000 tonnes). This was thanks to mainly two mines, the one in Cerro Verde and the other in Las Bambas. After a successful capacity expansion in September 2015, Cerro Verde copper mine reached full capacity in March and produced over 1,23,000 tonnes for the months of January to April.

The Las Bambas mine produced 31,470 tonnes in the same period. This mine is expected to produce 2,00,000 tonnes of copper this year and double its output in 2017.

Copper production from Kazakhstan too has been rising on new mines coming up. The country’s output rose by 100 per cent year-on-year to 2,81,000 tonnes during the first four months of 2016.

A new report by the International Copper Study Group (ICSG) says the global copper production capacity at mine level through 2019 may grow at a strong average annual rate of 4 per cent.

With Peru, new mine projects in Zambia, the Democratic Republic of the Congo, China and Mexico will add to the increased capacity says ICSG.

Lower demand The global demand for copper is expected to grow at a slower pace given Brexit risks and slower consumption in China. While UK makes for less than 1 per cent of global copper demand, EU accounts for 16-17 per cent of world copper demand. So, in the next six months to a year, as uncertainty prevails and businesses slow down their capex decisions, demand for copper may be hit.

In China, again, the picture is dim. The government has introduced a number of policies to stimulate the realty market , but, given the slower pace of private investment and the not so strong trends in the property market yet, it is doubtful whether China will hit its targeted GDP growth in the second half of the year. Official Beijing government data shows that private investment increased by only 2.8 per cent in the first half of the year down from 5.7 per cent in the first quarter.

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