Fitch Ratings forecasts that copper consumption will grow about 4% annually through 2014, based on a soft landing in China and a slow recovery in developed nations. European copper consumption is expected to remain depressed through this year.
Fitch analyst said that “Fairly balanced markets are expected for 2013, while 2014 could show better supply.”
Copper supply is expected to grow at about 3% annually through 2014 as production recovers from 2011 labor disruptions and new projects ramp up, offsetting lower grades in older mines.
Fitch said that additional mine production of about one million tonnes per year in 2013 and 2014 from the ramp-up of new projects in Africa’s copper belt, expansion projects, and recovery from operating disruptions. In 2014, nearly all the mine production growth will come from new greenfield projects and these are subject to higher risk of production shortfall.
Fitch said that “New production from Africa, where infrastructure is less developed, also faces a higher risk of shortfall particularly from power disruption.”
Meanwhile, over the next 12 to 18 months, copper prices are expected to remain well above the marginal cost estimated at USD 2.15/lb and EBITDA margins for a medium cost producer should remain above 45%.
The ratings agency expects costs to rise with lower grades, as well as higher taxes, treatment and refining charges, royalties, and wages. Fitch said that “In addition, new supply is being added at the higher end of the cost curve in the African copper belt.”
The analysts forecast that Chinese copper consumption is expected to grow about 6% in 2013. It added that “While urbanization trends will remain supportive of copper consumption, Fitch expects opportunistic destocking when prices are high.”
