Over the last few months we have constantly hear of disruptions in copper production by large producers for a variety reasons. The most noticeable have been:
Total lost production is expected to be around 260kt or around 6.5% of total production. This sounds significant but how important is it on in world production? We believe it is significant in drawing down stocks more rapidly than market expectations but more importantly, world demand is being underestimated and potentially provides a bullish copper price outlook that is not factored into the market.
Breakaway Research has reviewed current copper supply/demand forecasts across a number of leading brokers and institutions and believes that there is a potential underestimation of future demand and an overestimation of future short term supply.
A future supply deficit situation has been accelerated by the recent unforeseen mine disruptions discussed earlier and interestingly, the broader market has been slower to recognise the price upside
The risk to our forecasts is related to an unexpected slow-down in world growth. We think this is unlikely (and more likely to surprise on the upside) as the US President will drive his infrastructure plans and leading to job creation to make America ‘great again’ while China can’t let itself fall behind with faltering growth in this contest. Elsewhere the EU will have to prove that the Brexit is not really going to be a headache. So while this considerable political motivation in the world under the new order (countries moving on from globalisation to self-benefit), there is underlying economic strength across all zones with the most prevalent in the US which is stimulating the Federal Reserve interest rate increases...