China's copper surplus continues to expand in 2015

· global copper production grew at a modest 1.5 per cent annual rate, partly dispelling talk of a growing supply glut in the copper market.

· unsurprisingly, the growth in refined copper production outpaces the growth in copper supply, with increased copper concentration stocks and rising copper production increasing refined copper production.

· cash costs fell at an annual rate, with a slight rebound of about 1.2%.Costs fell 11 per cent for the year, although this was largely due to falling oil prices and currency translation.

· global demand for refined copper increased by 4% in 2014, basically in line with the increase calculated in 2013.

According to the 2015 copper yearbook by Thomson Reuters GFMS, global copper consumption was up just 6% from the previous year's 9% rise, thanks to weak demand growth in China, the main consumer of the metal.Global copper demand outside China rose about 2 percent, up slightly from 2013.

In absolute terms, China has been a major source of growth in global copper consumption, which has been driven by good market performance in Europe and the United States, partly offsetting falling demand in Russia and Brazil.

Despite rising inventories, copper prices are resilient

Copper prices are subject to repeated bull and bear cycles and are not subject to rising copper inventories.London metal exchange copper stocks, while still low, have risen after falling by 200,000 tonnes last year.Copper stocks on the Shanghai futures exchange also rose overall.The visible rise in copper stocks has led some to believe prices could fall further and enter a bear market.

Of course, it would be premature to conclude that copper market fundamentals are weakening based on early signs of rising stocks.First, seasonal factors will affect the inventory.Second, expectations of lower copper prices could influence buyer behavior.Finally, last year's Qingdao port copper inventory event also means that more metal will flow to metal exchanges as financial stocks fall.In other words, while continuing to focus on the risks, we also believe that the copper market will become increasingly oversupplied in the coming months as demand declines and supply increases.

Copper supply is expected to resume growth

On the supply side, the acceleration of miners' production last year will have a positive impact, and new copper mines will further boost global copper production.Copper production this year is expected to rise 3% to 19 million tons from an estimated 18.3 million tons in 2014.In addition, refined copper production is expected to increase considerably this year, although secondary market supply may be limited.Copper concentrate is expected to grow 3 percent in 2015, compared with 5 percent in 2014, due to ample inventories, smelters' desire to maximize profits and higher processing costs.

The risk of mine closures in 2015 appears limited.The industry's average net cash cost has fallen 11 per cent this year to $4,763 a tonne, with short-term copper prices likely to fall further.In the long run, the outlook for supply growth may not be good.The new copper extension price is expected to be $7,703 a tonne, below which spot prices have been for the past two years. Delays in copper projects, mine maintenance and reconfiguration will limit future copper supply growth to ensure that this year's surplus copper production is digested.

Expectations for copper demand remain pessimistic

Slower growth in China's construction sector -- new residential floor space fell 14.4 per cent in 2014 -- has weakened copper demand.The latest regulations on real estate registration and value-added tax have reduced investment demand in the real estate industry.State grid's planned investment is also expected to increase by only 9 per cent.On the other hand, sales of household appliances in China will grow by 5% in 2015.Replacing old air conditioners and installing new smart appliances will have a positive impact on copper demand growth.Overall, Chinese copper demand is expected to rise 4 per cent in 2015, down from 6 per cent last year.

The U.S. was a bright spot

Copper demand in the U.S. continues to be a bright spot for copper prices, and recent infrastructure projects in India add to our bullish outlook for copper demand in the region.In Europe and Japan, where copper use is becoming a smaller and smaller part of the world, it remains to be seen how far either economy will react to announced quantitative easing and weak exchange rates.Global copper demand is expected to rise 3% to about 22 million tons in 2015.

The copper surplus continued to expand in 2015

The surplus is expected to rise to 399,000 tonnes this year, after 316,000 tonnes last year, as new global copper output rises and demand weakens.Copper prices are not expected to recover in the first half of 2015.But the market could still surprise, including on the supply side, where copper producers are likely to cut planned output and China is likely to add reserves in the coming year.Copper prices are expected to average $5,975 a tonne in 2015, down 12 per cent from the previous year.