Copper supplies relative to demand will fall to a four-year low as operating glitches, labor shortages and declining ore-grade quality cut mine supplies, boosting prospects for a price rebound, Barclays Capital said.
Stockpiles will be sufficient to last for 2.7 weeks by the end of the year at projected demand, down from 3.2 weeks at the end of 2011 and 3.6 weeks at the end of 2010, Gayle Berry and Nicholas Snowdon, analysts at Barclays Capital, said in a telephone interview. Copper will average $9,300 a metric ton in the fourth quarter, the bank said in a report on April 12. The commodity has averaged $8,300 so far this year.
Prices have more than doubled since the end of 2008 as miners struggled to keep pace with rising demand. Freeport-McMoRan Copper & Gold Inc., the world’s top publicly traded copper producer, cut its 2012 sales forecasts last week after violence among employees halted output at its Grasberg mine in Indonesia for more than two weeks in February and March. Rio Tinto Group said on April 17 that production of the metal dropped 18 percent in the first quarter because of lower ore grades at its Kennecott Utah operation.
“All of these issues are going to keep the level of disruptions elevated,” Snowdon said. “There are new projects hitting the market, but it’s a relatively disappointing outlook” for supply, he said.
Copper for delivery in three months climbed 0.7 percent to $8,205 a ton yesterday on the London Metal Exchange.
The last time the stocks-to-consumption ratio was below 2.7 weeks was in 2008, when it fell to 2.3, Snowdon and Berry said. Supplies will fall short of demand by 278,000 tons this year, Barclays said. The bank expects mine output to climb by 350,000 tons, compared with a “consensus view” among traders and analysts of 600,000 tons to 800,000 tons, Barclays said in a report on April 23.
Rebounding economic growth in countries including China in the second half of the year will also help support the metal, Berry said. Prices in London have dropped 2.8 percent this month after reports showed swollen Chinese inventories and a decline in copper shipments to the Asian nation, the world’s biggest consumer.
World copper supply may exceed demand by 2017 as Chile and Peru lift their output of the metal and companies invest in new mines, Diego Hernandez, the chief executive officer of Chile’s state-owned Codelco, said in a presentation in Santiago on April 17. The company is the largest producer.
“You never know what technological innovations there will be to let you get more, and more quickly,” said Adrian Day, who manages about $170 million as the president of Adrian Day Asset Management in Annapolis, Maryland. “But nothing is really on the horizon that we can see.” Production shortfalls “are happening now, and it’s going to be an increasing story,” he said.