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After production contracted 1.9% in 2019 to 20.6 million tonnes due to lower ore grades and production disruptions, copper production was initially expected to rebound strongly in 2020 on production increases in Chile, Peru and China.
However, with falling demand and ongoing disruption to mining activities due to lockdowns, 2020 output is now expected to total only 21Mt, with new production from First Quantum's Cobre Panama mine and Freeport-McMoRan's Grasberg mine, in Indonesia, offsetting production losses elsewhere.
Among the major adjustments mining analyst Vinneth Bajaj had to make to the regional forecast was China production growth falling to about 6%, down from the 9.6% predicted before the outbreak.
"Lockdowns in Chile and Peru will reduce the output in two markets that currently account for 40% of the global supply. Production in Chile is forecast to grow by 0.3% and in Peru by 2%, compared with a 1.4% decline and 2.6% growth, respectively, in 2019. There is also expected to be a slowdown in development of new projects," Bajaj said.
About 40-45% of the global copper demand is from the construction sector and this is also expected to be hit hard by the COVID-19 outbreak.
"GlobalData's latest expectations are for global construction output to grow by just 0.5% in 2020, from an original forecast of 3.1%. The direct impact on construction has been the halting of work - with labour unable to get to the construction sites - and disruption to supply chains with delays in the delivery of key materials and equipment, due to quarantines and travel restrictions. Widespread postponement and cancellations of projects is also expected," said Bajaj.
Overall expectations are for copper demand growth of 2.7% versus the 4.1% predicted before the outbreak. The reduced growth rate is linked heavily to lower construction activity in China from mid-January, although the situation is gradually improving with restrictions being eased.
However, there continues to be reduced activity globally as more countries move to limit non-essential business operations.
"The current forecast assumes that the outbreak is contained across all major markets by the end of the second quarter, following which conditions would allow for a return to normalcy in terms of economic activity and freedom of movement in the second half of the year. However, there will be a lingering and potentially heavy impact on private investment due to the financial toll that is being inflicted upon businesses and investors across a wide range of sectors," Bajaj said.
After the prolonged US-China trade war, which undermined copper market sentiment in 2019, with prices down by 8% over 2018, the copper price improved during the fourth quarter of 2019, reaching US$5,893.2 per tonne owing to the optimism regarding the US-China trade.
With weak industrial and construction activity and shrinking demand, the copper price is expected to remain low, averaging between $4,700-$4,900/t for the coming three months.