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China's demand growth is weak, and copper surplus continues to expand in 2015

Words:[Big][Medium][Small] Mobile Page Two-Dimensional Code 2018-10-15     

The global copper mine output has a moderate increase of 1.5% year-on-year, which to some extent dispelled the increase in oversupply in the copper market.


Unsurprisingly, the growth rate of refined copper has exceeded the pace of copper supply growth, and the increase in copper stocks and the increasing production of copper will increase the production of refined copper.


Cash costs fell year-on-year, with a slight rebound of about 1.2%. Annual cost has fallen by 11%, although this is mainly due to the fall in oil prices and currency conversion factors.


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


        According to the 2015 copper yearbook published by Thomson Reuters GFMS, global copper consumption has only increased by 6% compared with the previous year's 9% increase due to weak demand growth in China's major consumer countries, mdash;— Global copper demand outside China has risen by about 2%, a slight increase from 2013.


       In absolute terms, China is the main source of global copper consumption. The good market performance in Europe and the United States has also driven global copper consumption, partially offsetting the decline in copper demand in Russia and Brazil.


Despite the rise in copper inventories, copper prices have resilience


       Copper prices continue to be affected by bullish and bear markets, and are not subject to rising copper inventories. Although the copper stocks of the London Metal Exchange (LME) are still at a low level, they have risen after dropping 200,000 tons last year. The copper stocks of the Shanghai Futures Exchange have also increased overall. The visible increase in copper inventories has led some to believe that copper prices will fall further and enter a bear market.


       Of course, it is clear that some of the early reasons for the rise in copper stocks have concluded that the underlying factors of the copper market have weakened. First, seasonal factors can affect inventory levels. Second, expectations of a fall in copper prices may affect buyer behavior. Finally, last year's Qingdao Port copper inventory incident also means that as financial inventories fall, more metals will flow into the metal exchange. In other words, while continuing to pay attention to the corresponding risks, we also believe that in the next few months, as demand decreases and supply increases, the oversupply situation in the copper market will become more and more obvious.


Copper supply is expected to resume growth


       On the supply side, the accelerated production of miners last year will have a positive impact, and the new copper mine will further boost global copper production. Copper production this year is expected to increase by 3% from the estimated 13.3 million tons in 2014 to 19 million tons. In addition, the production of refined copper will increase by a considerable amount this year, although the secondary market supply may be subject to some restrictions. Due to sufficient stocks, smelters are expected to increase their profit by 3% in 2015, and increase by 5% in 2014.


      The risk of mine closures in 2015 appears to be limited. The industry average net cash cost fell 11% during the year to reach $4,763 per ton, and short-term copper prices are likely to continue to fall. In the long run, the prospect of supply growth may not be optimistic. The promotion price of new copper is expected to be 7703 US dollars per ton. The spot price has been lower than this level in the past two years. The copper mine project extension, mine maintenance and re-layout will inhibit the growth of copper supply in the future. Make sure to digest excess copper production this year.


Copper demand is still expected to be pessimistic


       The slowdown in the construction industry in China (new residential construction area fell by 14.4% in 2014) led to a weakening of copper demand. The latest regulations on real estate registration and value-added tax have reduced the investment needs of the real estate industry. The planned investment of China State Grid is also expected to increase by only 9%. On the other hand, sales of household appliances in the Chinese market will increase by 5% in 2015. Replacing old air conditioners and installing new smart appliances will have a positive impact on the growth of copper demand. Overall, China's copper demand is expected to rise by 4% in 2015, down from 6% last year.


The United States has become the highlight of the price of copper


       Copper demand in the US market is still a bright spot for copper prices, and India's recently announced infrastructure projects have also made our estimates of copper demand in the region more optimistic. In Europe and Japan, although the share of copper use in these countries is decreasing globally, it remains to be seen which economy will respond to published quantitative easing and weak exchange rates. Global copper demand is expected to rise by 3% in 2015 to approximately 22 million tons.


Copper surplus continues to expand in 2015


      Under the circumstances that the increase in global copper output and the weak copper demand are intensified, it is expected that the copper surplus in this year will increase to 399,000 tons after reaching 316,000 tons last year. Copper prices are expected to recover in the first half of 2015. However, market development may still be unexpected, including on the supply side, copper producers may cut planned production, and China may increase national reserves in the following year. The average copper price in 2015 is expected to be $5,975 per ton, down 12% from the previous year.



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