HSBC has lowered its copper surplus forecasts for 2013 and 2014 and raised its outlook for the average price by 7%, the bank said Thursday.
"We have cut our 2013 surplus forecast from 320,000 mt to 38,000 mt and our 2014 [forecast] from 630,000 mt to 88,000 mt," it said in its quarterly metals review.
In this environment, HSBC said it now expected copper prices next year to average $7,750/mt, basis London Metal Exchange cash, up from its previous forecast of $7,250/mt.
"This is well above marginal cost and slightly below average prices in 2010-12 ($8,100/mt). We have continued to cut our forecast for the cumulative 2013-15 surplus (now 660,000 mt, down from 1.8 million mt in July and 2 million mt in our April report)," HSBC said.
"This, in addition to our view that mine project development looks difficult later this decade, underlies our copper price forecast." The LME cash copper settlement price was $7,172/mt Thursday, for a year-to-date average of $7,366/mt.
Potential mine growth delays, medium-term economic growth in China, and a better 2014 in the west will keep the copper market balanced, HSBC said.
"We now see less of a surge in 2014/15 copper production than our previous forecast, based on our bottom-up review for copper mines," it said. "We forecast refined production growth to peak at 4.5% in 2014 before falling to 3.5% in 2015."
Mine supply growth will come in 2014 from expansions at Escondida, a ramp-up in production from the Congo (Kamoto, KOV and Mutanda) and ramping production from Grasberg, Oyu Tolgoi and Sossego, HSBC said, adding its copper-in-concentrate growth forecast falls from a peak rate of 7% in 2015 to 5% in 2016 and a contraction of 1% in 2017.
"We continue to see a lack in high-quality large-scale projects beyond the current mini surge in supply," HSBC said.
With regard to consumption, "we continue to believe that consensus demand estimates for 2013/14 are too low, and have been driven by the appearance of old inventory in visible exchange stocks," it said, adding this was a reverse of the error made by consensus in 2009-10 when demand estimates were too high and expectations of sustained deficits in 2011-12 were also misplaced.
"We have been pointing to upside risks to our demand projection, and are now raising these estimates to reflect near-term strength in China (owing to the mini-stimulus program now under way) and potential recovery in Western economies," it said.
HSBC is forecasting demand growth rates around 10-year trend rates (3.4-4.5%/year), rather than particular spikes due to a recovery year, such as 8.6% in 2010 and 9.3% in 2004.
