Impact of production cuts on Copper Forecast

The fall of Copper prices to six and half years low in August made major mining companies
like Freeport-McMoRan (FCX), Glencore (GLEN), Anglo American Plc (AAUKY) to declare
production cuts. As the mine shutdowns impact the production of Copper in 2015 and 2016,
the production and usage forecasts of 2015 and 2016 are changed.

Revision of Copper Market Forecast

The International Copper Study Group (or ICSG) releases a forecast for Copper market
twice a year. In the year 2015, the first report was released in April and the revised second
report was released on October 6th, 2015.

The above table explains the production and usage forecasts of copper for 2015 and 2016

Impact of production cuts on Copper Forecast

The total refined copper mine production, after increasing by 7% in the year 2014 is
forecasted to be increased only by 0.8% in 2015. This is mainly because of the production
cuts announced by major mining companies after April 2015.The forecast of 360,000MT
surplus of copper production in 2015 released in April is revised to 41,000MT.
It also reduced its production estimate for 2016 to a deficit of around 130,000MT against
230,000MT surplus forecasted in April 2015. The reduction in production estimate is
because of the reason that demand growth outpaced the production growth.
After recording a growth of 7% in 2014, ICSG forecasted world refined copper usage in 2015
to decline by 1.2%.This is due to the economic slowdown of china and decrease of copper
demand. For 2016, the refined copper usage is expected to be around 3%.

Investors Anticipating a Tighter Market Situation

From the revised copper market forecast report released by ICSG, it is understood that there
is a decline in production side and also the usage (demand) side. This can possibly lead to a
tighter situation in the market and can support mining companies, base metal ETFs like
PowerShares DB Base Metals Fund (DBB), SPDR S&P Metals & Mining ETF (XME) which
fell significantly because of weak Copper prices.