Morgan Stanley Copper Price Outlook

The copper price has started to bounce back from its drastic fall at the start of the year, climbing more than 6 percent over the past month. However, Morgan Stanley (NYSE:MS) has cut its 2015 price forecast for the metal by roughly 16 percent, to $5,945 per tonne, on the back of lackluster demand from China.

The firm remains convinced that base metals will outperform bulk commodities such as coal, but in a report it expresses concern that seasonal demand from China has failed to pick up as expected. In the report, analysts Tom Price and Joel Crane state that far from expanding trade in response to “a growing list of government approved property and infrastructure projects,” the metals processing industry in China “remains dormant” and is “actually sidelining capacity.”

"With only months left before the mid-year peak in sales of commodity-intensive goods, time is running out for China to support commodity prices in 2015,” the note reads. Certainly, Morgan Stanley isn’t alone in making that observation — the Financial Times8 pointed to an absence of increased demand earlier this month, and also noted that imports fell to their lowest since 2011 for February.

Still, Morgan Stanley also notes that the red metal is slowly recovering after recording the biggest fall of all the base metals during the last quarter of 2014. It chalks up copper’s fall to a reaction to collapsing crude oil10 prices, and also to “aggressive China-based hedge fund selling.”

"Once the oil price discovered a floor in late-Jan, copper’s largely unchanged tight mining fundamentals supported a price rally,” the firm states. Furthermore, it notes that while global exchange inventories have risen about 11 percent over the past three months, there are indications that “copper’s short-term fundamentals have actually improved a little.”

Supply/demand predictions

That said, the firm stresses in the note that the market will have to wait and see what happens in terms of Chinese demand when it comes to predicting an outcome for the copper price. So far, the meter could move either way.

Bloomberg notes that China’s Purchasing Managers’ Index fell to an 11-month low of 49.2 for March, indicating a contraction in manufacturing activity, while Morgan Stanley states that key power grid investment data came in at a two-year low for the first two months of the year. That said, Morgan Stanley points out that China’s state grid chairman recently announced that investment may by increased by 21 percent year-over-year, upping expectations for increased spending.

Taking a look at the supply side of things, Morgan Stanley believes that it will “expect ongoing supply disappointments, simply because it is a feature of the industry.” For instance, Indonesian exports remain at risk politically — especially in the wake of Freeport-McMoRan’s (NYSE:FCX) production halt at Grasberg — and Rio Tinto (NYSE:RIO) has cut Kennecott’s supply outlook. Still, the firm is also watching other projects that could drive mine supply growth, such as MMG’s (HKEX:1208) Las Bambas and Chinalco’s Toromocho, both in Peru, and First Quantum Minerals’ (TSX:FM) Sentinel mine development in Zambia.

All in all, copper investors have plenty to keep an eye on going forward when it comes to tracking drivers for the red metal’s price. At close of day on Tuesday, spot copper was up just barely by 0.14 percent, trading at $2.79 per pound.

China's Copper Imports May Climb above 300,000 T in Mar. after Decline in Feb.

China’s refined copper imports posted a 24.23% fall on the year in February this year, to 211,609 tonnes, Customs data indicate.

The noticeable decline in import volumes was mainly due to the Chinese New Year.

However, SMM expects the import numbers to bounce back to more than 300,000 tonnes this month

M. Stanley slashes metals outlook on 'dormant' China

China's copper imports in February totalled 280,000 tonnes, down by nearly a third from January and the worst drop since 2011.

Customs data also showed imports of iron ore dropped 13.5% to just under 68 million tonnes in February although compared to a year ago there was a gain of 11%.

Coal imports tumbled 9% at 15.26 million tonnes and is down by a third year-on-year.

While seasonal factors played a role in the magnitude of the declines, the "new normal" of slower growth rates in China will continue to put downward pressure on commodity prices says Morgan Stanley in a new research report.

Instead of delivering its reliable first-quarter seasonal expansion in trade, China’s metal processing industry remains dormant

Bloomberg Business reports the investment bank has slashed its forecast across a range of metals and minerals with nickel estimates taking the worst drubbing:

“With only months left before the mid-year peak in sales of commodity-intensive goods, time is running out for China to support commodity prices in 2015,” the Morgan Stanley analysts wrote in the report. "Instead of delivering its reliable first-quarter seasonal expansion in trade, China’s metal processing industry remains dormant.”

Morgan Stanley new forecast for the nickel price is 19% below its previous estimates for the year at $16,094 a tonne, which is still sharply higher than today's ruling price of $14,175.

The bank cut its 2016 outlook for copper by 14% to $6,283 a tonne on the back of a global copper surplus of some 230,000 tonnes, compared with a balanced market last year.

Copper held onto its recent gains trading at a three-month high above $6,000 on Tuesday despite news of operations at the Grasberg mine in Indonesia returning to normal after a 5-day blockade by workers that lifted the price.

The bank's 2015 forecast for iron ore was brought into line with the ruling price in the mid-$50s. Morgan Stanley now believes the price of the steelmaking material will average $57 a tonne in 2015 before recovering to $65 a tonne next year and $71 in 2017.

Both those estimates were below previous forecasts thanks to seaborne supply exceeding demand by 129.3 million tonnes in 2017 from an estimated 55 million tonnes this year.

Global aluminum output dropped in February: IAI

The most recent statistics released by the International Aluminum Institute (IAI) indicates that the global aluminum output during the month of February this year, excluding China, dropped when compared with the prior month. However, upon comparison with the same month a year ago, the Feb ’15 output has improved considerably.

As per IAI data, the total aluminum production during February this year totaled 1.911 million mt, down by almost 9% when compared with the revised output figure of 2.104 million mt in January. The output during Feb ’15 was higher by nearly 2% when compared with the output of 1.868 million mt in February last year.

The cumulative aluminum output during the initial two months of the year totaled 4.015 million mt, slightly higher when compared with the output of 3.919 million mt during the corresponding two-month period in 2014.

The average daily aluminum output during the month of February this year was higher month-on-month and year-on-year. The daily output, excluding China, averaged at 68,300 mt per day, higher by 400 mt per day when compared with the average daily output of 67,900 mt per dat during January this year. The average daily output climbed higher by 1,600 mt per day when compared with 66,700 mt reported during February last year.

Founded in 1972, IAI currently represents over 60% of global bauxite, alumina and aluminium production. The Institute works closely with the national and regional aluminium associations. IAI has companies engaged in the production of bauxite, alumina, aluminium, the recycling of aluminium, or fabrication of aluminium or as joint venture partners in such as its members.

Blockade lifted, normal operations resume at Freeport Grasberg mine

According to latest newspaper reports, the five-day unofficial blockade of access road at the Grasberg mine in Indonesia has been lifted. The company spokeswoman stated that normal operations have resumed at the mine effective this Friday.

The he unofficial strike by workers at the Grasberg, Papua, Indonesia mine run by Freeport had lasted for five days, halting copper production works at the world’s second largest copper mine in the world. The strike action was initiated by a group of employees, who held a demonstration on Monday blocking the access road at MP 72. This was the only access to the Grasberg mine, underground mining areas and processing facilities.

According to union spokesman, the strike was not backed by them. They further stated that the cause of the strike was unknown. Meantime, the company spokeswoman had clarified that the company was willing to attend to the concerns of the striking employees and had expressed the hope that copper production at the facility was not affected.

Reports indicate that as many as hundred workers were involved in the strike action, demanding bonuses as an incentive for not taking part in a work stoppage last year. The workers agreed to stop the blockade upon request by union officials. The company is yet to reach an agreement with the workers on their demand.

Freeport-McMoRan Copper & Gold Inc., (FMCG) is one of the world's largest producers of copper and gold. Its headquarters are located in the Freeport-McMoRan Center in downtown Phoenix, Arizona. Freeport is the largest publicly traded copper and molybdenum producer in the world. It mines and mills ores containing copper, gold, molybdenum and silver.

The Grasberg Mine is the second largest copper mine in the world and is located in the province of Papua in Indonesia near Puncak Jaya, the highest mountain in Papua.

Copper up, FCX down as workers halt production at Grasberg

The copper price recovered from a one-month low on Wednesday to gain 3 percent on Thursday, as the metal markets reacted to a dovish Fed statement and news out of Indonesia that production has stopped at the Grasberg copper and gold mine.

Workers blocked an access road to Grasberg – the world's second largest copper mine by capacity – for the fourth day, Thursday, leading to speculation that the shutdown will have a material affect on prices, The Australian reported. A statement by the US Federal Reserve the same day signalling that the central bank is less likely to raise interest rates than expected, was also supportive of copper.

Three-month copper on the London Metal Exchanged leapt 3.2 percent to close at $US 5,850 a tonne, the biggest one-day percentage gain since February 3 and well above Wednesday's one-month low of $US5,621.50, the Australian said.

Bloomberg reported that the blockade was not organized by the union, but about 50 workers from seven tribes in Papua who are seeking promotion for not participating in a labor dispute last year. Output was suspended starting Monday but shipments from old stockpiles continue, according to a union spokesman quoted by Bloomberg.

Nevertheless, Freeport-McMoRan Copper & Gold’s (NYSE:FCX) investors saw the labor dispute as good reason to dump the stock. Trading on heavier-than-normal volumes, FCX slipped 5.32 percent to $17.26 a share on Thursday in New York, just under a dollar above the 52-week low of $16.43.

Work stoppages at Grasberg are fairly common. Last October open-pit operations were suspended as protesters demanded management review safety conditions following an accident involving a truck that killed four workers. The previous year workers set a tent on a mine access road following a landslide in Big Gossan that killed 28 employees.

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