“The improvement in demand will probably be capped out by the ability of supply to keep up,” said Andrew Shaw, the head of industrial-metal and bulk commodity research at Credit Suisse Group AG in Singapore. “We’re probably past the trough but it’s not very convincing.”
Codelco, the largest producer, cut the premium it charges on top of the LME cash price on sales to Chinese buyers by 11 percent to $98 a ton for 2013, according to two people familiar with the talks. That compares with a 5.6 percent drop to $85 for European buyers and an 8.6 percent reduction to $85 for Japan and South Korea. Lower fees usually signal higher supply.
Chinese inventories may start contracting as the economy strengthens. Exports rose in October at the fastest pace in five months and a preliminary reading of HSBC Holdings Plc and Markit Economics’ purchasing managers’ index for November signaled the first expansion in 13 months.
“Next year will be slightly more positive than this year,” Jeremy Goldwyn, director at Sucden Financial Ltd., said in an interview on Bloomberg Television from Shanghai today. “That’s predominantly based on improvement in Chinese conditions, marginally better in the U.S. and pretty much the same in Europe,” said Goldwyn, who’s worked in the industry for more than 25 years.
Expectations for next year’s global supply are probably too optimistic, Macquarie Group Ltd. said in a report Nov. 6, citing constraints including power shortages in the Democratic Republic of Congo. The bank anticipates production growth of 4 percent next year and a “significant copper surplus remains unlikely.”
The mining industry is contending with rising costs from labor to energy and is extracting about 19 percent less metal from every ton of rock that it was in 2000, according to Macquarie. Codelco, based in Santiago, reported a 5 percent drop in nine-month production on Nov. 22 because of declining ore grades at its Chilean mines.
Freeport will report net income of $4.52 billion in 2013, from $3.14 billion in 2012, according to analyst estimates. Its shares rose 6.5 percent to $39.19 this year and will reach $50.05 in 12 months, the predictions show. Copper accounted for 78 percent of sales last year, data compiled by Bloomberg show.
“We’re still relatively positive on copper with China’s economy recovering, and the U.S. as well,” said Nick Trevethan, a senior commodities strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “Europe’s pretty much written off, but the China story’s becoming more and more about China and less and less about the rest of the world.”