"One of the reasons why copper prices have been so incredibly strong in the past five years has been the fact that there's been very little new mine supply come on stream," said Patricia Mohr, vice-president of economics and commodity market specialist at Bank of Nova Scotia.
"Copper has been in a deficit until fairly recently, but it seems it may shift this year into a surplus," she said, pointing to expansions and new mine construction in countries from Chile and Peru to Indonesia, the African continent and Canada.
Copper's inability to maintain firm prices is a worrying signal that the outlook for the global economy is too weak to provide solid demand. Prices for the industrial metal, often called Doctor Copper for its ability to act as an indicator of broad economic health, touched eight-month lows of around $3.32 US a pound Thursday amid news that U.S. service industries expanded at their slowest pace in seven months in March. Copper was trading at more than $3.70 a pound earlier this year.
At the same time, inventories in warehouses monitored by the London Metal Exchange were at their highest since October, 2003, when copper was trading at around 90 cents a pound and China had not yet roared onto the market in an unprecedented urbanization drive.
Copper has been one of the strongest base metal performers over the past decade, pushed higher by such explosive growth in China that prices only briefly wavered after the onset of the 2008 global economic crisis.
The metal is used in construction, power generation and transmission, the auto industry and other areas, and has been a key ingredient in a decade of Chinese city building.
"Copper could be a sideways trade for a couple of years as the market absorbs some of this new supply," said David Garofalo, chief executive officer of HudBay Minerals Inc. (HBM-T 9.49 0.05 0.53%), which will put the Constancia copper mine into production in Peru next year.
"I don't think anyone is talking about shortages any more," said Bart Melek, head of commodity strategy at TD Securities Inc. in Toronto. "If you look at inventories in Europe, they're massive."
