The copper boom to be continued… December 27, 2016 – Posted in: posts
The models developed by ExMetrix predict further growth in prices of copper. The platform generated two predictive models. The first one concerns the prices of copper and the second one refers to changes in a value of copper. The conclusions out of both models are coherent – the copper market foresees a boom that may last at least several next months.
The evaluation of raw materials prices for a year or a few months forward is not inconsequential. The case of the copper market is not a unique incident. It is still a challenge for highly specialised research groups such as International Copper Study Group who often are forced to change radically their initial calculations. For example, in October 2014 ICSG computed that the copper deficit will amount to 270 thousand of tons in 2014. In the April assessment of 2016, it was expected over-production of copper up to 400 thousand of tons. ICSG justified the deficit as a result of the late opening of new mines and they also pointed out problems with production in existing mines. The final deficit in 2014 was up to 410 thousand of tons. Referring back to the assessment from October 2014, according to ICSG the over-production of copper was expected to amount to 390 thousand of tons in 2015. Meanwhile, the actual deficit totaled 57 thousand of tons. ICSG in their latest assessment (the end of October 2016) for 2017 predict the over-production of 160 thousand of tons. In March 2016 they registered 20 thousand ton surplus. For several years now, the demand surprises researchers that it turns out to be bigger than expected.
In addition, ICGS reported that data on inventories in Chinese bonded warehouses may be distorted due to the lack of official statistics. Owing to the fact that about 40% of the global copper demand is generated in China the condition of the economy in this country largely determines the price of this metal.
In the Chinese energy sector is the highest demand for copper which accounts for about 46% of the demand. The next are the household appliances sector 15%, transport 11%, the construction sector 9.5%, electronics 7.5%, and other categories which account for about 11%. Besides the copper in China is often used as dollar loan guarantees. In addition, China’s State Reserves Bureau (SRB) does not hesitate to buy up large amounts of copper (thus affecting the exchange rate) to achieve and maintain stocks at around 2 million tones.
Over the longer period of time, the demand for copper in China should be fostered by investments in the sector of renewable energy and reinforced by the need of reduction pollution in big cities. The production of energy on wind farms is rapidly increasing in China. Most of this energy is generated outside the cities hence the demand for copper (power cables).
Unfortunately, a simple translation of the demand and supply level into the copper rate does not exist. The supply or demand do not explain satisfactorily the rate change. Since 2010 there has been a continuous deficit in the copper market (demand exceeds supply). Nevertheless, in the years 2011-2015 the rate dropped. But in the year 2010, it surged and there are indications that 2016 will bring the same results. However, the data mentioned which could be implemented in building an accurate model explaining the changes in the copper rate is insufficient. On the other hand, future estimates are highly uncertain that implementing them to the model raises very serious questions. The attempt to build a predictive model of the copper rate in the perspective of five months required the use of additional data such as:
- the volume of production of copper power cables, bars, pipes, metals, various types of electronic devices, cars and other non-ferrous metals
- PPI and the employment rate in the production of non-ferrous metals and the mining industry of non-ferrous metals
- sea and railway freight rates and employment rate in these areas
- China’s import and export of refined copper
- non-ferrous metal prices, ore reserves, and refined copper
- the economic situation in the sector of energy (renewable energy), construction, automotive and real estate market
The model was developed in two independent versions as a forecast of the course itself and forecast changes (momentums) in five months perspective of rate copper. The versions are coherent, that is, both models point in the same direction of change (growth) rate. The model was developed in October 2016 on data to 30.09.2016. The end of the forecast is the end of February 2017.