Copper Expected to Remain in Decline as China's Demand Drops

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Researched by Industrial Info Resources Australia (Perth, Australia)--The production of copper could increase in the next few years, despite the current market price downturn. The International Copper Study Group (Lisbon, Portugal) released a statement last quarter predicting that the supply of copper around the globe would increase about 4.3% in 2015, while demand will increase only 1.1%, leaving a huge surplus of copper on the market.

Weak demand from the world's largest consumer, China, is one reason for the decline in the price of copper. The country is going through a massive slowdown as the government tries to transition from an investment-based economy to a consumption-based economy. There is broad weakness in commodities worldwide as a direct result of this slowdown. Copper is no exception.

Another reason for the "copper crash" can be attributed to the decline in the price of oil, which is down more than 50% since June 2014. Cheaper energy costs will encourage mining companies to increase production, contributing to a huge surplus of commodities across the industry--specifically copper. Both explanations indicate that the copper price will remain low this year.

The long-term future of copper appears more promising. An increase in demand for copper is expected to come from emerging economies to fill the supply gap left by China's slowdown. The demand will come from many third- and second-world nations that hope to build the infrastructure to propel their economies. As part of the massive shift toward urban centers within these economies, demand for essential commodities is forecast to grow, and the necessity to build, power and run expanding cities will rest on the availability of copper.

Nevertheless, with global supply projected to outpace demand for copper this year, the price likely will decline in 2015. Already the price has decreased further this month. Australian Mining hints that "the only likely savior, in terms of Australian producers, is a weak Australian dollar, which will push up revenues despite prices remaining fairly flat."

Australia is a large copper exporter. In 2013, the country recorded that more than AU$6.73 billion (US$5.54 billion) had been accumulated from its copper exports alone. New South Wales received more than AU$2.01 billion (US$1.67 billion) in revenue from its copper exports, by far the largest amount received by a single state. Western Australia and Queensland recorded AU$1.73 billion (US$1.44 billion) and AU$1.8 billion (US$1.49 billion) in revenue, respectively, while South Australia and Tasmania received the smallest share in total copper export revenues, each collecting AU$941 million (US$779 million) and AU$247 million (US$204 million) each.

China has been the single-largest contributor to the export revenues. Australia received AU$2.1 billion (US$1.74 billion) from the country just last year. Australia will need to prepare itself for the effect that China's decline in demand for copper imports will have for the country. Japan is the second-largest destination for Australia's copper exports, having spent AU$1.92 billion (US$1.59 billion) in 2013 on copper imports. Coming in at third place, India paid more than AU$1.07 billion (US$890 million) to import high grade copper from Australian shores.

Australia's copper producers are expected to see their financial gains cut, while global production could increase for reasons explained above. The price of copper is therefore expected to remain low, or decline moderately, during the year as massive demand from China deteriorates. However, there is hope that emerging countries will match that demand during the next few years as they seek more prosperous economies.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.