Tucson, Arizona 05/05/2016 - Copper demand growth is expected to slow in the near and medium-term, which will result in prices holding around $2.20 per pound ($4,800 per tonne) through this year before hitting $2.50 per pound ($5,500 per tonne) in 2017, according to Nick Pickens, a senior research manger at Wood Mackenzie.
After global copper consumption growth averaged 2.7 percent between 2000 through 2015, Pickens is now forecasting growth to slow to 1.3 percent over the next twenty years as the Chinese economy moves away from metal-intensive infrastructure projects.
"Decelerated growth is the new normal, but it's not a doomsday scenario," Pickens said on Thursday at the American Copper Council conference here.
One bright spot for the industry is the continued growth in solar power, wind energy and electric cars. All of those sectors use a greater intensity of copper versus conventional methods.
Additionally, non-residential buildings like shopping centers and hospitals will be the primary growth drivers until at least 2020 as residential demand starts to return around 2025. Non-residential construction uses more copper than residential construction, aiding the red metal in the short-term.
"Electricity will remain a key growth area," Pickens said. "[Power] generation itself will become more copper intensive" with production turning away from coal and towards greener options over the coming years.
Still, recent Chinese construction data has been downbeat, resulting in overall downgrade in the sector year-over-year, Pickens said.
China specifically will see copper demand grow by 1.6 percent annually through 2035, while Chinese real use copper consumption is projected at 11 kilograms per capita by 2035 - a downgrade reflecting new construction data.
While others have cited India as a potential replacement for China moving forward, Pickens is pessimistic with India's lack of competition particularly affecting growth; he is expecting single digit Indian copper growth in the interim.
MORE CUTS NEEDED
While miners have closed expensive and inefficient mines since the start of 2015 in North America (215,000 tonnes) and Africa (480,000 tonnes), the market needs a further rebalancing despite an overall 865,000 tonne reduction.
Without an additional 480,000 tonnes in mining cuts over the 24 months, prices will not stabilise and metal stocks will continue to rise, Pickens argued.
"The industry has more fat to cut," he said, but did commend copper miners for showing supply side discipline during the commodities slowdown.
In terms of supply, Pickens is projecting total output to crest above 19,000,000 tonnes in 2016 and 20,000,000 tonnes in 2017, with mine production peaking in 2019 at nearly 22 million tonnes – factoring in a five percent mine disruption rate.
Demand will continue to grow steadily and reach nearly 24 million tonnes in 2026. But to fill the eventual shortfall stemming from projected mine closures, miners will need to see prices hit at least $3.30 per pound to incentivise new mine supply.
"In the short-term, mine supply growth really depends on the extent of [mine] disruptions," Pickens concluded. "Over the medium-term, we will see a gradual recovery, but this does assume that cost-related closures from the miners occurs.
(Editing by Tom Jennemann)