Feast or famine? Right now the refined copper market is going through one of its confused phases, displaying simultaneous symptoms of both supply surplus and supply deficit.
In Shanghai, metal is piling up in warehouses registered with the Shanghai Futures Exchange (SHFE).
SHFE copper stocks surged by 45,032 tonnes last week to 350,138 tonnes, a record high. They have almost doubled since the start of the year.
On the London market the trend is running in the opposite direction.
Stocks registered with the London Metal Exchange (LME) have fallen by 61,625 tonnes so far this year. At a current 174,175 tonnes they are the lowest they’ve been since February 2015.
Available tonnage, meaning that which is not earmarked for physical load-out, is the lowest it’s been since September 2014 at 121,425 tonnes.
Unsurprisingly, LME spreads are tight and tightening further. Equally unsurprisingly, the Shanghai copper curve is in benign contango.
Confusing isn’t it?
All of which makes the latest set of forecasts from the International Copper Study Group (ICSG) particularly timely.
And as far as the ICSG is concerned, refined copper is in neither feast nor famine. Rather, supply and usage are expected to be broadly balanced both this year and next. The ICSG is now forecasting a global refined copper deficit of 56,000 tonnes this year and a surplus of 20,000 tonnes in 2017.
This year’s anticipated deficit has been marked down from the 127,000-tonne supply shortfall seen at the group’s last meeting in October 2015.
Next year’s anticipated surplus, though, has also been reduced from 175,000 tonnes. Either way, over a two-year period, the outcome is the same, a market in which supply and usage are pretty much matched.
Moreover, in the context of a 23mn tonne market, these balance assessments are very small and well within the margin of statistical error. And there is plenty of margin for error. Pinpointing a supply-usage balance in an industrial commodity as diversified in its usage as copper is a statistically fraught exercise at the best of the times.
Throw in the current overarching macroeconomic uncertainties, particularly those originating in China, the world’s biggest copper user, and statistical certainty becomes ever more elusive.
But the key takeaway here is the evolution of the ICSG’s underlying forecasts for supply and usage over the course of the group’s last three meetings, as shown in the graphic below.
Of course, it may seem counterintuitive that copper could be in anything over than massive surplus.
New mines are coming on stream just as demand growth is slowing, first and foremost in China, the driver of copper usage over the last decade.
And it’s true that the ICSG has slashed its usage forecasts in light of the slowdown in China and manufacturing weakness elsewhere. It is now expecting global apparent usage to grow by just 0.5% this year. That mirrors a similarly weak expectation for apparent usage growth in China itself. Emphasis on the word “apparent”, a calculation which uses only published information and not, say, changed in unreported stocks.
It’s still a really significant downgrade from the growth rate of 3.1% forecast this time last year and from the 3.0% figure that came out of the Group’s last meeting in October.
But offsetting this downgrade on the usage side of the ledger has been an equally sharp downgrade of expectations on the supply side.
World mined production is now expected to grow by just 1.5% in 2016, compared with projections of 5.1% and 4.2% in April and October 2015 respectively.
The growth rate is expected to pick up to 2.3% next year but it will still be lower than the 3.5% rate recorded in 2015.
The most interesting part of this supply forecast is the divergent trends between the main components.
So, while production of mine concentrate is expected to grow by a brisk 4% this year, supply of metal from mines in the form of leached cathode, is forecast to slide by 8%. That’s largely a function of voluntary capacity closures by Glencore at its central African operations and by Freeport McMoRan at operations in both the US and Chile.
That reduced stream of cathode from mines feeds into the ICSG’s reduced refined metal supply growth forecast of 0.5%, down from 2.3% last October.
So too does an anticipated 1% drop in secondary production as scrap availability drops in the face of lower copper prices.
Of course the ICSG’s latest forecasts are themselves a snapshot in time but equally importantly they can only provide a snapshot of the refined part of the copper supply chain.
It may well be, as many other analysts suggest, that there is a big surplus of copper concentrates awaiting processing into metal. And it may also be that stocks of finished or semi-finished products are increasing too.

Andy Home is a columnist for Reuters. The views expressed are those of the author.