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The copper slumps under the weight of new mine supply, while Aluminium has been poised to slide towards 1647 and even 1634. Key support at 1615 trendline, resistance 1725/45. Restarts of previously idled capacity in China and new projects added 2Mt so far in 2016. Zinc has been bullish, concentrate market tightening but refined inventories available. The neutral trading direction is advised for Nickel, we think some signs of emerging supply tightness, while huge stocks still overhang.
In the year to date, copper continues to underperform the other base metals due to a H1’2016 surge in global copper mine supply as projects ramp-up in Peru and despite declining production in Chile. In the year to date, we estimate that global mine production has increased by about 6% year-on-year. This estimate seems reasonable given official statistics released for the first five months of the year.
World mine production is estimated to have increased by around 4% (345,000t) in the first five months of 2016 compared with production in the same period of 2015, according to the International Copper Study Group (ICSG). Concentrate production increased by 5.5% while solvent extraction-electrowinning (SX-EW) remained essentially unchanged.
The increase in world mine production was mainly due to a 52% rise in Peruvian output that is benefitting from new and expanded capacity brought on stream in the last two years.
A recovery in production levels in Canada and the US expanded capacity in Mexico and a ramp-up in production in Mongolia also contributed to world growth.
On the contrary, demand side outlook has been subdued. The Copper is likely to underperform on rising supply and the slowdown in China. The heightened market uncertainty due to Brexit would prompt investors to seek safe-haven assets, benefiting gold and the rest of the precious metals.
Furthermore, the demand outlook for copper is muted partly because of slowing infrastructure spending growth in China. We forecast the LME copper price to trade down to about $4300 before year-end.
Hence, stay short in 3-month LME copper, we continue to maintain existing shorts in far-month futures.
