Demand for base metals from China should remain "reasonably strong," aided by recovery from developed markets in 2014 -- although down from 2013 -- JP Morgan said in research released Friday.
Analyst Colin P Fenton wrote in a detailed paper that the investment bank forecasts global copper usage growth to fall to 5% in 2014 from 10% last year and for global aluminum usage growth to decline to 8.2% from 11.5%.
He pointed to a positive that "despite China worries and weaker economic data prints in the US, global manufacturing continues to exhibit strong momentum."
The JPM global manufacturing PMI fell in January, but is still consistent with global manufacturing output of around 5% annualized, "ahead of our economist's current forecast of 3.8% global IP growth in 2014 -- from 1.7% in 2013," he said.
However, he cautioned that, for China, "our forecasts for 2014 Chinese base metals demand are generally lower than 2013, in line with moderately weaker fixed asset investment forecasts."
Looking at copper, "high mine supply growth in 2013 has left the global market carrying high concentrate stocks. The timing of any drawdown of these stocks and conversion to refined metal, particularly in China, is key." The question of when a refined copper surplus will emerge has been ongoing for almost a year now.
"Our base case is that this is likely to be a trend which becomes more apparent in the second half, though we monitor the China smelter fleet closely for signs of an aggressive post New Year production ramp up, potentially aided by a an easing in scrap availability," said Fenton.
Most sources told Platts that cathode tightness should ease in H2 2014 and then fall back into deficit in 2015 as demand increases.
Copper market sentiment and fundamentals continued to keep premiums high in Europe, although demand remained patchy, sources said this week.
Inventory levels continued to wane in Europe, with copper stocks in LME-registered warehouses falling 1,225 mt on the day to 308,025 mt Friday.
Looking at premiums, one physical trader said there was no change and "nothing to report."
A consumer said: "Premiums are stronger now due to the lack of arrivals from Chile -- due to the recent port strike for over three weeks. Grade A cathode premiums are now in the range between $120-140/mt CIF Rotterdam. Good quality standard cathodes are traded with a premium of about $90/mt, same basis."
Platts European premium assessment for Grade A CIF Rotterdam remained at $120-140/mt plus LME cash this week. Italian material was also unchanged at $140-150/mt, basis CIF Livorno.
