Washington (Platts)--19Nov2012/459 pm EST/2159 GMT

The global copper market will move into a wider surplus next year due to additional supply projects and current stockpiles, analysts with US retail and investment back Citibank said Monday.

Copper moved into a supply surplus in the second half of 2012 and will likely end the year with a 53,000 mt surplus, Citibank analysts said in a report. But that surplus is expected to widen to 134,000 mt next year.

"After a dreadful 2011 in terms of production losses, there has been clear evidence of copper mine supply improving since Q2 2012," Citibank analysts said. Production from major copper miners has risen 4% over the first three quarters compared with a year ago, they noted.

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Chinese mine production rose 22% over the first three quarters, with Chinese miners expected to account for more than 11% of total copper concentrate production in 2012.

"Copper bulls continue to contend that copper supply will fail to deliver in 2013, pointing to losses due to strike activity, ore depletion and project slippage as the reasons," Citibank analysts said, noting that those factors contributed to the poor output in recent years.

"However, we believe that these factors will be less of an issue in 2013, leading to an expectation of total mine supply growth of 1.1 million mt, or 6.7%, for the year."

Other contributing factors include overall Chinese demand and current Chinese stockpiles, on and off the exchange, the analysts added.

Though many market players believe 650,000 to 1 million mt of copper may be stored in private, bonded warehouses, the Citibank analysts said those levels have been and continue to be understated.

With financing deals coming under increasing scrutiny due to the practice of "multiple collateralizing" of the same units, "We expect metal will begin to flow out of such deals. This suggests that the impact of improving demand may well be muted by increasing metal availability next year," the analysts said.

Moreover, Chinese demand is unlikely to receive a boost from additional stimulus due to a desire by China's new leaders to avoid asset bubbles like those created after the 2008 stimulus, Citibank said.

Though infrastructure investment in China was up nearly 25% in October since the start of the year, growth in property sector investment was down 15.4% in October.

The volume of unsold property, combined with continued government policies to control property prices, "suggests there is little prospect of a significant pick-up in residential construction activity in 2013," according to the analysts.

Though Citibank expects some improvement in Chinese copper consumption next year as end-product destocking reverses itself, 2013 growth is still expected to be among the lowest seen in the last 15 years at 7.4%, they said.

"While improving Chinese data in Q1 is expected to see copper prices push back above $8,000/mt, significant upside potential will be hampered by a combination of continued improvement in mine production results, bonded warehouse stock draws in China, and rising metal exchange inventory levels," Citibank said.

"In addition, we see little prospect of renewed speculation of physical copper [exchange-traded funds] having any meaningful price impact. We are therefore forecasting 2013 copper prices to average $7,965/mt."

--Nick Jonson, nick_jonson@platts.com

--Edited by Lisa Miller, lisa_miller@platts.com

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