RPT-COLUMN-Study Group expects weak demand to trump copper's supply stress: Andy Home

By Andy Home

LONDON, April 30 (Reuters) - The copper market may need to rethink its bull narrative of constrained supply and worry more about weakening demand, judging by the latest forecasts from the International Copper Study Group (ICSG).

The Group, which has just gathered in Lisbon for its latest twice-yearly meet, is expecting a hefty supply surplus of almost 500,000 metric tons over the course of 2025 and 2026 as global demand growth slows.

That would mark three straight years of excess supply after an estimated surplus of 138,000 tons in 2024.

True, the ICSG highlights the drag effect on refined copper production from lagging mine output, particularly in 2026, but the drag effect on demand from U.S. President Donald Trump's tariff blitz is likely to be stronger.

UNCERTAINTY PRINCIPLE

Global copper usage rates have been revised lower "in view of uncertainty surrounding international trade policy that is likely to weaken the global economic outlook and negatively impact copper demand", the ICSG said.

The Group's statistical committee now expects demand growth of 2.4% this year, a cut from its October forecast of 2.7% and down from actual growth of 2.8% in 2024.

Copper usage growth is expected to slow further to 1.8% in 2026, largely reflecting an anticipated loss of momentum in China, the world's largest consumer, where growth is forecast to brake hard from 2.0% this year to just 0.8% next year.

Demand in other key copper regions such as Europe, Japan and the United States is expected to remain "subdued", leaving Asia as the key driver.

Although the ICSG acknowledges the positive impact of new demand drivers such as energy transition technology and data centers, its forecasts underline the broader manufacturing hit that would ensue from a prolonged trade war between the United States and China.

SUPPLY STRESS

Copper mine output is forecast to rise by 2.3% in 2025 and by 2.5% next year, according to ICSG, which includes a disruption allowance in its calculations based on the deviation of actual from forecast output over the last five years.

Higher output will in part be driven by the start-up of multiple small and medium-sized mines in countries as diverse as the Democratic Republic of Congo, Brazil, Iran, Uzbekistan, Ecuador, Eritrea, Greece, Angola and Morocco.

Will it be enough to feed the world's smelters?

Right now, too much processing capacity is chasing too little mined concentrates with the result that headline smelter treatment charges have fallen into record negative territory.

The ICSG expects mined concentrates availability to continue acting as a drag on refined metal production with global output growth expected to decelerate from 3.7% in 2024 to 2.9% this year and to 1.5% in 2026.

However, a growing offset to the stress in primary supply will come from the secondary processing sector, which generates refined copper from recycled materials.

New and expanded recycling capacity in a number of countries is expected to feed a 6.4% year-on-year rise in secondary production next year.

MACRO HIT

The ICSG forecasts capture the growing market concern about the real-world impact of U.S. President Donald Trump's tariff blitz.

The effects are already starting to become manifest.

China's factory output contracted at the fastest pace in 16 months in April, according to the official purchasing managers' index, which dropped to 49.0 from 50.5 in March.

The Caixin/S&P Global private-sector survey generated a slightly more positive reading of 50.4 but it too was sharply off a reading of 51.2 in March.

Both surveys picked up sliding export orders as U.S. tariffs of 145% on Chinese goods ripple through the country's giant manufacturing sector.

MICRO TURBULENCE

But copper faces a double tariff conundrum.

The prospect of a U.S. tariff specifically on imports of copper is dislocating the global supply chain.

Metal is moving to the United States to get ahead of any possible tariff, tightening up availability everywhere else.

CME warehouse stocks are now at their highest levels since 2018 and rising daily.

Shanghai Futures Exchange stocks are going in the opposite direction. Registered inventory has fallen from a Lunar New Year holiday peak of 268,337 tons to 89,307 tons.

As regional price differentials widen, the distribution of any supply-demand surplus will likely be equally divergent.

The ICSG forecast of global plenty may not mean plenty for everyone.

The opinions expressed here are those of the author, a columnist for Reuters.