Copper prices could rise longer-term as concerns over a supply glut are overblown, said BMO Capital Markets, boosting its 2017 price forecast for the red metal, but lowering its medium-term outlook.
In a research note released Wednesday, BMO lifted its long-term average price forecast for copper to $3 a pound by 2017, up from $2.75, saying that an estimated 3.2 million tons a year of “greenfield” development is needed to meet demand over the next decade.
In the medium-term, however, copper supplies will be substantial, they said. BMO forecast mine supply growth of 7.7% in 2014 and 11.6% in 2015, although they added the caveat that this rate has not been achieved for 20 years.
Still, the bank lowered its near-term price forecasts saying, “Unless -- or until -- the risks to consensus expectations for a severely oversupplied copper market are acknowledged, copper prices appear unlikely to appreciate meaningfully anytime soon.”
BMO has a base case copper supply forecast of 840,000 in 2015, but notes that 96% of the global copper refined supply is still needed to meet demand.
They lowered the 2015 average price outlook to $2.90 from $3 and the 2016 outlook to $2.65 from $2.75. Their forecast for 2013’s average price forecast is $3.30, for 2014 it is $3.25. They did not state if the 2013 and 2014 prices were changed.
They said that recent positive manufacturing data out of China, the U.S. and Europe lifted the outlook for copper, but what offsets the demand news is “anticipated onslaught of copper supply over the next few years in combination with slowing growth out of China,” they said.
By 2017 they expect an incremental 5.6 million tons of mine supply. Yet what makes BMO believe that current forecasts for heavy copper supply in the coming years is that supply forecasts from 2001 to 2011, forecasts were off by 2% for one year and about 8% for years five to 10 of their research, they said.
“Therefore current forecasts may be overly optimistic” on estimating mine supply growth, they said.
The other question to ponder is whether Chinese copper demand is accurate, they said. Power and construction demand are up 20% year-over-year in China, representing half of copper demand. Analysis of trade data suggests that if the demand figures are “real,” they said, then this year’s copper consumption should be 12% above last year. However, they added their base case growth this year is likely closer to 5%, given the government’s ongoing rhetoric around reform and shutdowns.
