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By Andy Home

LONDON (Reuters) - The global refined copper market recorded another year of supply-usage deficit in 2017, according to the International Copper Study Group (ICSG).

The Group’s preliminary assessment is that the headline shortfall was 163,000 tons or, adjusting for changes in Chinese bonded warehouse stocks, an even more marginal 135,000 tons.

In the context of a 23 million ton global marketplace, these are very fine balances indeed.

Moreover, copper supply and demand were almost evenly matched in the last quarter of 2017, suggesting that copper’s deficit dynamics are ebbing.

However, the real story in the ICSG’s first take on last year’s statistical landscape hides behind the headlines.

Copper scrap, the often overlooked component of both market dynamics and price, played a starring role in determining that landscape.

Graphic on ICSG’s estimates of market balance 2013-2017:

A FINE BALANCE

Copper bulls have loved a narrative of supply deficit ever since the years of chronic shortfall, when the London Metal Exchange (LME) price shot up to its all-time high of $10,190 per ton in February 2011.

And the deficit narrative is alive and kicking again as the market collectively ponders the ominous combination of declining mine grades, lack of investment in new supply and the demand accelerator that will be the electric vehicle revolution.

But last year’s “deficit” of 135,000 tonnes is almost too small to have market significance, being equivalent to a 0.6-percent margin of error in global usage.

Keep in mind the statistical labyrinth that is global copper demand, particularly in China, where the ICSG employs an “apparent usage” calculation based on the country’s own production and net imports.

The broader picture over the last few years is of a steadily diminishing deficit to the point of market balance in the closing months of 2017.

The ICSG’s preliminary take on the fourth quarter of last year is a 7,000-tonne surplus, or 2,000 tonnes when adjusted for an assessment of how much is in China’s bonded warehouses.

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