The International Copper Study Group (ICSG) has cut its forecast supply surplus for this year due to much lower-than-expected mine production. Copper bulls might take issue with the group's view the refined copper market will still be in oversupply this year and the next to the tune of 162,000 and 94,000 metric tons respectively.

But when it last met in October, the ICSG's statistical committee was expecting a 467,000-ton glut of metal this year. The new forecasts suggest a much closer alignment of production and demand in what is a 27-million-ton global market. The revisions largely confirm the current bull narrative of a squeeze on raw materials that will brake refined metal output growth.

A cautionary caveat comes in the form of a downwards revision to global usage this year and a subdued demand outlook in China, the world's largest copper consumer. Back in October, the ICSG expected mine supply to surge by 3.7% this year due to a combination of new mines, expansions, and a broader recovery from the operational constraints of 2023. That surge has become a trickle with the ISCG expecting growth of just 0.5% due to delays at new projects, revised company guidance, and the unexpected closure of the Cobre Panama mine since December. Cobre Panama, now on care and maintenance, has left a 380,000-ton hole in the global raw materials supply chain. Smelters have been forced to turn to the spot copper concentrates market, and spot treatment charges have collapsed to distress levels as buyers prioritize tonnage over profitability. Chinese smelters' agreement in March to curtail production was the trigger for a rally that has taken London Metal Exchange three-month copper above the $10,000-per ton level for the first time since April 2022.

The flow-through effect of the concentrates squeeze on smelter production has caused the ICSG to cut its refined metal supply forecasts as well. The October forecast for 4.6% refined metal production growth this year has been reduced to 2.8%, and the growth rate will slow to just 0.7% next year in the ICSG's view.

However, the ICSG's latest forecasts carry a note of caution about the state of copper demand. Refined metal usage is expected to grow by 2.0% this year over 2023, a downgrade from the 2.7% growth expected at the group's October meeting. The pace of growth is forecast to pick slightly to 2.5% in 2025, with a divergence in performance between China and the rest of the world.

The ICSG's latest forecasts capture the current split in market dynamics, with the investment community stampeding into copper on the long side, drawn in by a narrative of structural supply problems and a turn in the global manufacturing sector. Physical buyers, not least those in China, have largely been left on the sidelines as investors have pushed the price higher. While investors will take heart from the ICSG's forecast of a yawning mine supply gap, consumers are more likely to endorse its subdued demand outlook.