A debate rattles on in the global copper market about whether a supply surplus will cap raging prices or whether a continued strain on supply will cause the red metal to keep accelerating.
With preliminary data from international metals groups stating that the global refined copper market was in a surplus in the first quarter of the year, some market players see a lid on the recent price rally.
The International Copper Study Group, or ICSG, reported on May 18 that preliminary data showed that the global refined copper market was in surplus by 24,000 tonnes in February, or 52,000 tonnes after making seasonal adjustments.
Revised data for January and February indicates a cumulative production surplus of 77,000 tonnes, or 117,000 tonnes on a seasonally adjusted basis, the report said.
At the same time, the World Bureau of Metal Statistics, or WBMS, reported a small surplus of 4,000 tonnes of copper in the first quarter of this year.
"When [the ICSG and WBMS] said that the copper market was in a surplus, that relieved some upside pressure on the market,'' said Jim Steel, senior vice president and metals analyst at HSBC Bank.
With those figures in the mix, the copper market appears to have shrugged off some recent bullish reports including news that the world's biggest copper producer, Corporacion Nacional del Cobre de Chile, or Codelco, expects its output of copper to fall through next year.
This year, copper output will drop to 1.71 million tonnes from 1.83 million tonnes last year, falling further next year to 1.65 million tonnes, Codelco said.
By 2020, the company hopes to mine 2.5 million tonnes. That is a drop from previous estimates of expanding output to 3 million tonnes by 2020.
"The market has gone up so sharply that it has already absorbed potential bullish news without making new highs," Steel said, adding that even though supplies may be tight there is concern that demand has reached a peak.
But the counter opinion contends that copper fundamentals are among the strongest in the complex.
Analysts say visible inventories are well below critical levels, forcing consumers to exit the market. They said they do not think the market can to return to a significant surplus in the next 18 months.
While demand remains strong, Goldman Sachs analysts said supply continues to face disruption, citing the ongoing strike at Grupo Mexico's La Caridad mine as well as a union's vote to authorize a strike at Falconbridge Ltd's Lomas Bayas operation in Northern Chile.