Expect another surplus year for the world copper market. Output is now expected to exceed demand by 310,000 metric tons instead of the 20,000 metric ton deficit that was predicted earlier. Year-to-date cathode prices on the London Metal Exchange (LME) have been stuck at the same 72¢/lb average that was recorded in 2001.

"A deficit of around 20,000 metric tons essentially is a balanced market," the International Copper Study Group (ICSG) says. However, market mavens point out that excess production—and the subsequent rise in LME and other commodity exchange inventories—reflects the sharp and nearly synchronous slowdown in global copper-using economies since early 2001.

Because of copper's wide range of applications, changes in industrial demand tend to appear more in the copper market than in markets for other base metals. However, the demand outlook for the rest of 2002 is murky at best.

Industrial production hasn't grown as much as expected in the world's three largest economies—the U.S., Japan and Germany—which account for about 40% of world copper demand. LME stocks alone were almost 900,000 metric tons in mid-September.

At first, world refined copper use was expected to rise 540,000 metric tons, or 3.7%, to 15.29 million metric tons from the 14.75 million consumed in 2001. Then, the forecast from the ICSG was adjusted to a 2.9% growth rate to 15.18 million metric tons. However, just-released midyear data shows end-use growth running less than 2% to 15.04 million metric tons.

World production of refined copper was expected to total 15.2 million metric tons in 2002, a decline of 1.8% from 15.47 million in 2001, according to the London-based ICSG, which notes that 2001 oversupply was caused partly by a 100,000 metric tons production excess. Later, the 2002 production forecast was changed to a 2% decline (15.16 million metric tons). However, midyear data shows production on pace for only a 0.8% slippage to 15.35 million metric tons.

"Supply and demand fundamentals have changed very little," says analyst David Meger at Alaron Trading in Chicago, who suggests that "only when the big industrial players get up off the sidelines and place new physical orders will there be a rebound in demand growth and prices."