Uncertainty marks the global copper market as tightening fundamentals vie with global growth concerns, and trade friction among major economies continues to create its own risk. Supplies are critical for meeting consumption demand; and over the last one year no fresh investment has gone into major new mining projects.

Copper prices have been hovering around $6,500 a tonne. Many believe the rate is not attractive enough for starting new projects. The earlier high price regime saw a number of green-field and brown-field projects in South American origins such as Chile and Peru. However, for supplies to reach the market from these projects it may take 2-3 years as the gestation period is long.

Unplanned copper mine supply disruptions are a recurrent feature and such events also constrict supply, while smelter/refinery outages result in refined production loss. Vedanta’s Tuticorin smelter is a case in point. While supplies are expected to remain relatively tight, if no fresh investments are made, the tightness will continue for an extended period of time. Of course, it may open up opportunities for substituting copper with aluminium, even if partially, in electronic devices. Fortunately, aluminium market is well supplied and trades at relatively attractive prices.

At the same time, prices of most commodities are expected to ease back over the course of the current year on the back of subdued growth in demand, especially for metals. A look at the macros of major economies – Europe, Japan and China – points to slowing growth. The US too is expected to slow in the months ahead.

The International Monetary Fund has been adjusting down its forecast growth for the global economy. The year 2019 will possibly witness the weakest growth in 10 years. Clearly, high tariffs are weighing on global trade. In the event demand growth will take a hit, and substantially neutralise the effects of tightening supplies.

Admittedly, China is the mover and shaker of the global metals market in general, and the copper market in particular. So, developments in China have a bearing on the market. Chinese demand, which grew at 3 per cent last year, is likely to register a similar gain this year too. Growing investment in power grid generates demand for copper, while the automobile industry too is a major user.

From a global perspective, in 2019 refined production will trail consumption, resulting in a deficit for the third year in a row. The deficit would be an estimated 300,000 tonnes, sharply up from 50,000 tonnes of last year.

So, for the copper market, it is going to be a tug-of-war between tightening fundamentals on the one hand and demand growth concerns on the other, over the following quarters. While the outcome of the US-China trade negotiations are keenly awaited, it is possible the talks will drag on for some more months, prolonging the uncertainty. The US Federal Reserve has indicated a pause in rate hike for this year, while China has sought to provide a stimulus. Whether there will be a concerted and coordinated effort by major economies to prop up economic activity remains to be seen.

The author is a policy commentator and commodities market specialist. Views are personal

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