Any copper surplus next year is unlikely to emerge until the second half, with the price well supported in the first half, JP Morgan said Thursday.
It raised its forecast for the average price in the first quarter by 2% to $7,210/mt, and cut its third-quarter estimate 6% to $6,750/mt. For the full year, JP Morgan saw an average of $7,003/mt, from a 2013 average of 7,314/mt.
Copper for delivery in three-months time closed the Wednesday LME kerb session at $7,220/mt. The metal opened the year at $8,000/mt. It hit a year-to-date high of $8,346/mt February 4. On June 25, it touched an intraday low of $6,602/mt.
The market has been awash with talk throughout the year that copper will clock a hefty surplus in 2014. That talk is becoming tapered as the new year approaches, on concerns that excess concentrate, or raw material, will take a while to be converted into cathode.
"2013 is coming to a close with copper cathode markets arguably tighter than they have been at any point since early 2011," JP Morgan said.
LME on-warrant copper inventories, which have drawn to their lowest level since before the financial crisis, are at 132,000 mt, according to JP Morgan data.
Copper stocks in London Metal Exchange-registered warehouses slipped further at the Thursday count, down 3,800 mt at 396,075 mt. On warrant material stood at 131,825 mt with the remainder off warrant, indicating the threat of possible delivery.
"However, we forecast a surplus copper market for full year 2014 in the region of 300,000 mt. In our base case, we expect the surplus to be more skewed toward the second half of the year, with commensurate risks to the price path in the latter half of the year," JP Morgan said.
Looking at China, the world's largest consumer of copper, the bank said: "Recent feedback from market participants in China has confirmed our data-driven view of faster-than-expected demand growth, with both major tube and wire-rod producers reporting better-than-expected offtake at each stage of the year."
"Anecdotal evidence suggests that downstream consumers have not accumulated significant inventory, while stocks of finished products such as air-conditioners remain low."
JP Morgan estimated Chinese copper demand was up 10% year-to-date relative to 2012, "and global demand looks likely to have expanded by over 5% this year".
Looking forward, "the copper market will likely become increasingly reliant on Chinese smelter expansions to turn ample concentrate availability into cathode. Chinese refined production growth will most likely define the extent of the cathode surplus next year."
In conclusion, JP Morgan said: "We expect the refined copper market to stay tighter in the first half of the year and modestly looser in the second half, pressuring the spot price lower."
