Copper, which has bounced off two-year lows just below $7,000 a tonne, is the base metal that looks especially vulnerable to further declines, according to Deutsche Bank. On the demand side, the Chinese manufacturing sector has just shrunk for the first time in seven months. This suggests China’s slowdown has intensified after a lacklustre first quarter.
Then there’s the rapidly growing supply of the red metal. As Capital Economics points out, between 2005 and 2011 annual copper output grew by an average of just 1% a year. But last year, supply finally caught up with demand.
Mine production jumped by 3.9% in 2012, the second-fastest rate since the turn of the century, and was expanding by 14% year-on-year in January 2013. The rate of output growth will slow but a 5% supply increase “is certainly achievable” over 2013 as a whole, and again in 2014. As demand has weakened, stockpiles have grown.
Copper stocks in warehouses monitored by the London Metal Exchange have almost doubled this year and total exchange inventories are at a ten-year high. So expect further price falls. The upshot, reckons the consultancy, is that copper could slide below $6,000 next year.