• Zambia can benefit from tight copper market.
• World copper mine production expected to increase by 3% in 2023.
• Global copper market to transition to surplus in 2024 with increased supply.

Harare - The International Copper Study Group (ICSG) met last week of April and released an update on the global copper market. According to the ICSG, the copper market is expected to remain in deficit in 2023 before surpluses emerge in 2024 due to additional supply coming online.

The ICSG now expects world copper mine production to increase by 3% in 2023, lower than the 5% growth forecast in October 2022. This downward revision is owing to operational issues, equipment failures, adverse weather conditions, landslides and community actions in major producing countries like Peru. However, increased output from new and expanded mines in Democratic Republic of Congo, Peru and Chile will add to global copper mine supply this year. Major projects like Kamoa Kakula and Tenke in DRC, Quellaveco and Torromocho in Peru and Quebrada Blanca QB2 in Chile will commence or expand operations in 2022 and 2023.

The ICSG expects global copper mine production growth to slow to 2.5% in 2024 as fewer major projects are expected to come online in the first half of the year. Smelter production is expected to rise by 2.6% in 2023 and 4.4% in 2024 supported by continued expansion of Chinese smelters and recovery in western smelters. Secondary production from scrap is also forecast to increase over the next two years with new secondary capacity coming online.

On the demand side, the ICSG forecasts world refined copper usage to increase by 1.4% in 2023 and 2.8% in 2024. Usage growth is expected to be supported by recovery in economies from Covid-19 disruptions, re-opening of China following easing of restrictions and steady rise in manufacturing activity and copper end-use sectors globally. Chinese apparent refined copper demand is projected to rise by 1.2% in 2023 and 2.6% in 2024 based on reported data. However, underlying real demand in China is estimated to grow between 2.5-2.9% in the next two years according to industry consultants. Usage in the rest of the world is forecast to rise by 1.6% in 2023 and 3% in 2024, surpassing pre-pandemic levels.

The global copper market balance projections by ICSG indicate a deficit of 114,000 tonnes in 2023 before surpluses of 298,000 tonnes emerge in 2024 due to more supply coming online. However, the ICSG acknowledges that global balances can deviate from forecasts due to unforeseen changes in supply and demand. In particular, the Chinese market balance does not capture significant stock changes which can impact global balances during periods of heavy stock build or destocking.

Equity Axis believes that copper prices are likely to remain well supported in the short to medium term due to supply constraints before surpluses emerge in 2024. Major African copper producers like Zambia are well positioned to benefit from firm copper prices in 2023 with new supply set to come online. Zambia is the world’s eighth-largest producer of copper, with output of 796kt in 2022, down by 0.56% on 2021. Over the five years to 2021, production from Zambia increased by a CAGR of 0.04% and is expected to rise by a CAGR of 0.29% between 2022 and 2026.

Leading producers of copper in Zambia are First Quantum Minerals, Barrick Gold and Glencore. First Quantum Minerals's output was 600.62kt in 2021, up by 7% on 2020. Barrick Gold produced 103.71kt, a decrease of 9%, and output from Glencore was 12.79kt, a decrease of 5% on the previous year.

Analysts at Goldman Sachs expect copper prices to average $9500/t in 2023 due to mine supply issues before declining to $8800/t in 2024 with reduced risk of supply disruptions. Meanwhile, JP Morgan forecasts copper prices averaging $9700/t in 2023 and $9000/t in 2024 on expectations of a deficit market over the next 18 months.

In summary, the global copper market is transitioning to a surplus over the next 24 months after a sustained period of deficits. However, supply chain issues are likely to keep the market tight in the short term and provide price support in 2023. Major copper producing countries and miners stand to benefit from resilient copper prices before balances soften in 2024.

-Equity Axis News