ICSG Slashes Supply and Demand Outlook for Copper; BHP’s Escondida Disruption Propels ASX Copper Stocks

Copper prices are rallying on the back of operational disruption at the world’s largest copper mine-Escondida owned and operated by the ASX mining giant-BHP Group Limited (ASX: BHP).

The cash prices of copper on the London Metal Exchange surged rapidly from the level of USD 5,598 per tonne (as on 4 October 2019) to the level of USD 5,888 a tonne (as on 29 October 2019), which in turn, underpinned a price increase of over 5.1 per cent, which is further fuelling the s.

Disruption at Escondida

The disruption at the copper mine in Chile started on 21 October 2019 when the union workers at the mine held a day-long strike in solidarity with the ongoing protests in Chile.

Thousands of Chileans protested the hike in public transportation cost, and the protests were peaceful. However, riots were reported in few cities. The ongoing concern in Chile supported copper prices.

However, despite a healthy price gain of 4.80 per cent, the outlook for copper remains tepid with the International Copper Study Group (or ICSG) anticipating a decline in both demand and supply ahead.

International Copper Study Group Forecast

ICSG anticipates the world copper mine production to decline by 0.5 per cent in 2019 post an increase of 2.5 per in 2018; however, the production is forecasted to increase by 2 per cent in 2020.

The Supply Forecast

• The decline in the global mine production is estimated due to unexpected disruptions in Africa and output decline in Indonesia over the transition of the 2 major mines to different ore zones;
• The recent suspensions at the SX-EW mines, along with reductions in scheduled production and temporary smelter shutdowns in Africa lead ICSG to lower production forecast against its April forecasts;
• The decline in ore grades along with other disruptions in major copper-producing countries such as Chile, Peru, the United States had limited the production;
• Despite large disruptions, ICSG slashes the production forecast by just 0.5 per cent as the group believes the increased production from the new mine project such as Cobre de Panama in Panama coupled with the planned expansion of Toquepala in Peru in 2018 would partially offset the production declines anticipation amid aforementioned reasons.
• Post a decline of 0.5 per cent in 2019; the group anticipates the production to surge by 2 per cent in 2020 as additional supplies from the ramping-up of recently commissioned mines coupled with a recovery in Indonesian output and improved production in Africa would support the supply chain.
• ICSG further anticipates the production to grow in 2021; however, the anticipation remains subject on the commencing of the committed projects on schedule.

Refined Copper Demand Outlook

The infrastructure development in fast growing countries such as China and India along with the global inclination towards green energy would support the copper demand as copper is essential to economic activity and even more so to the tech savvy modern society.

However, the group anticipates that the global economic slowdown would impact the demand for world refined copper adversely in 2019 and 2020.

• In 2019, the global usage for refined copper has been impacted over the lower than estimated growth in China. The U.S-China trade war has also dented the refined copper usage across the global economies, and the European Union has also witnessed a significant decline in the usage of refined copper.
• ICSG predicts Chinese apparent demand for refined copper to rise by 1 per cent in 2020 against the underlying real demand growth of 1.5 per cent anticipated by few analysts for 2019 amid a decline in net refined copper imports.
• ICSG also anticipates the real demand growth for refined copper in China around 1 per cent in 2020.
• The group slashes the consumption outlook for the European Union as a weaker economic environment negatively affects different sectors; however, a recovery of 1.5 per cent is expected in 2020.
• ICSG also anticipates that the demand for refined copper in Japan would remain sluggish in the forecasted period, while the demand in the United States would increase in the present year before eventually levelling off in 2020.

ICSG anticipates the World refined copper balance to show a deficit of approx. 320,000 tonnes in 2019 before again climbing up to show a surplus of approx. 280,000 tonnes in 2020.

Australian Copper Scenario

Australia is the world’s seventh-largest copper producer and the second-largest copper ores and concentrate exporter. The primary market for the Australian copper is China and an estimated apparent increase of 1 per cent in demand for refined copper in China could benefit the Australian copper miners.

The Australian Department of Industry, Innovation and Science (or DIIS) anticipates the copper price to average USD 6,620 a tonne in 2021, slightly up from the average price of USD 6,525 a tonne in 2018.

The DIIS also estimate Australia’s copper exports to grow from 934,000 tonnes in 2018-2019 to 985,000 tonnes in 2020-21 as the production increases at the existing mines and new projects come online in Australia.

The export earnings in Australia is forecasted to stand over $10 billion in 2020-2021, slightly up against the export value of $9.8 billion in 2018-2019 amid higher volume and slight increase in the average price.

ASX Copper Stocks

Independence Group NL (ASX: IGO)

IGO-an ASX-listed copper and nickel mining stock is relishing over the increase in the prices of both copper and nickel, and the stock rose from the level of $5.750 (Day’s low on 21 October 2019) to the present high of $6.550 (Day’s high on 29 October 2019, As at AEST: 2:26 PM), which in turn, underpins a price increase of over 13.9 per cent.

Also Read: Twin Shocks of Copper and Iron Ore Set Rio and BHP Uptrend on a Detour

Sandfire Resources NL (ASX: SFR)

Another ASX-listed copper stock-Sandfire Resources also witnessed the slight positive impact of the disruption at the Escondida copper mine when the stock rose from the level of $5.960 (Day’s low on 18 October 2019) to the level of $6.400 (Day’s high on 23 October 2019), which underpinned a price increase of approx. 7.39 per cent.

The stock again traded in pressure from the level of $6.400 to the level of $5.690 (Day’s low on 25 October 2019); however, the stock is trading at $5.750 (As at AEST: 2:26 PM, 29 October 2019), down by 2.04 per cent as compared to its previous closing price.

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