Market prices in expected copper deficit deepening on more strikes

A global deficit of copper will deepen this year as more mines in South America are due to be hit by strikes, although the market has already priced in the further disruptions, a Reuters poll showed.

Earlier in the year the copper market was hit by a long strike at Chile’s Escondida, the world’s largest copper mine and a stoppage at No. 2 Grasberg mine in Indonesia.

Last week, workers at Antofagasta’s Zaldivar mine in Chile voted to strike while Peruvian miners plan to begin an indefinite nationwide strike on July 19.

Analysts polled by Reuters have more than doubled their estimates of a global deficit this year to 44,000 tonnes from 17,000 tonnes in the previous poll in May.

But analysts expect the situation to turn around next year and the market to flip into a surplus of 74,000 tonnes.

“We will mostly likely see more disruptions later this year … but they are not to be as severe, and the price impacts should be largely priced in,” said economist Amy Li at National Australia Bank in Melbourne.

Prices are not likely to get a boost from the walkouts, with the median forecast of 26 analysts for the average fourth quarter price of London Metal Exchange cash copper at $5,726 a tonne, down 3 percent from Friday’s close.

LME copper is up 8 percent so far this year, with its gains ranking fourth out of the six main LME metals.

Wary on aluminum cutbacks

Shortages are also a concern for the aluminum market, although analysts were cautious about how successful the Chinese government would be in implementing its planned crackdown on illegal and polluting plants this year.

Aluminum has been the top gainer this year among LME metals, climbing 15 percent, driven by worries about possible shortages if the authorities are successful in shutting down plants they have targeted.

While in the previous poll analysts slashed their estimates of a surplus by 74 percent, they have now increased them by 52 percent to 125,000 tonnes.

They have also cut an expected deficit next year by more than half to 87,000 tonnes from 200,000 in the previous poll.

“We would expect some old capacity to be shut but would think implementing all suspensions in the near term would be difficult to achieve without a more phased and gradual medium-term plan,” said Stephen Walker, head of global mining research at RBC Capital Markets.

Like copper, analysts see supply issues for aluminum largely factored into the price, with the LME cash price seen averaging $1,918 in the fourth quarter, a gain of only 0.5 percent from Friday’s close.

Zinc deficit to deepen

Shortages of zinc are expected to worsen after last year’s closures and suspensions of major mines, according to analysts’ forecasts.
The global zinc deficit this year is due to rise to 412,000 tonnes from 336,500 tonnes in the previous poll while the shortfall next year is pegged at 190,000 tonnes.

But like other metals, the market has more than baked those shortages into the price.

LME cash zinc is due to average $2,734 a tonne in the fourth quarter, down 1.9 percent from Friday’s last price.

“Even if prices will not exactly reflect market conditions, as they probably ran ahead of their fundamentals in the first half, the market should remain tight for several months,” said Daniela Corsini, commodity market economist at Intesa Sanpaolo in Milan.