BMO’s base-case copper forecast is for an oversupplied market through 2018, before it moves back into deficit in 2019. They also looks for supply surpluses of 711,000 in 2016, 595,000 in 2017 and 172,000 in 2018.
However, the surplus is likely to be relatively benign at only 3% of demand. As a result, BMO looks for the price to dip only to $2.90 a pound in 2016, which would be the 93rd percentile on the estimated 2016 cost curve.
However, BMO Research also noted that the bearish sentiment toward copper is due to the fact that the copper market has not really been in surplus since 2003 -- financial crisis aside.
Copper prices have declined from sitting above the cost curve for a number of years. The undersupplied base meals in the near term are expected to be nickel, aluminum and zinc ahead of copper.
Mine supply is forecast to increase to 21.9 million metric tons in 2016 from 17.9 million in 2013, a level of growth that has not occurred since 2004.
The key difference this time is that demand is unlikely to be on pace to absorb this level of mine supply near term.
“China remains the largest consumer globally, and while there is room to grow based on per capita figures, the pace is likely to slow as heavy industry overcapacity is reined in. Longer term, however, Asia and Latam are expected to drive the next up cycle,” BMO concluded.