Faltering demand in leading global copper consumer China will see prices of the metal struggle to gain traction this year, despite disruptions at mines that will slash the expected market surplus by half, a Reuters poll showed. Aluminium prices will also face headwinds as the market braces for more oversupply, having previously been expected to flip into deficit for the first time in nine years, the poll showed.
Analysts trimmed forecasts of expected shortages in other base metals such as nickel and lead, and largely downgraded price projections. The poll of 31 market participants surveyed over the past three weeks gave a median forecast that cash copper prices would average $6,125 a tonne this year, down 4 percent from the prior poll in January and slightly above current prices.
In 2016, prices are expected to rise to $6,567.5. The poll showed analysts expect the copper market to have a surplus of 105,000 tonnes this year, a tumble of more than half from the previous forecast of a surplus of 221,000 tonnes. In 2016, the surplus is expected to widen to 164,000 tonnes. "We remain bearish on copper despite lower production guidance from the major mining companies," said Robin Bhar, head of metals research at Societe Generale in London.
Several mining companies have cut forecasts for copper output this year due to a range of reasons, including geological problems, technical issues and weather. Torrential downpours in the world's biggest copper producer, Chile, forced temporary closures last month. Bhar said a weaker economy in China, which accounts for around 45 percent of global copper consumption, is expected to help dampen world copper demand growth to 4 percent from 5 percent last year.
"The risk to demand is skewed to the downside given our economists' 30 percent probability of a hard landing for China's economy," Bhar said. Copper prices slumped to 5-1/2-year lows in January, but have recovered by 11 percent from those lows. They are still down 6 percent so far this year.
ALUMINIUM TO REMAIN IN SURPLUS Analysts have revised their view of aluminium since the January poll, when they expected heavy demand from the automotive and aerospace industries and falling output to push the market into a 54,500-tonne deficit in 2015. In the latest poll, analysts expect the market to remain in surplus with an excess of 34,000 tonnes in 2015, close to the surplus of 38,500 tonnes for last year predicted in the October poll.
"There's been weakening demand and supply is picking up as well," said analyst Leon Westgate at ICBC Standard Bank. "Chinese exports of aluminium products are surging and that material is in effect primary aluminium. It's coming onto the market and having an impact." Exports of Chinese unwrought aluminium and products have jumped 43 percent so far this year, preliminary trade data showed on Monday. Meanwhile, 29 analysts produced a median forecast that LME cash aluminium would average $1,850 a tonne this year, down 6 percent from the previous forecast of $1,965. The price is seen rising to $2,000 in 2016.
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