Copper cathode plates are pictured at Escondida by BHP Billiton, the world’s largest copper mine, in Antofagasta, northern Chile, on March 31, 2008.
Ivan Alvarado | Reuters
Copper – traditionally seen as a leading indicator of economic health – is unsurprisingly having a rough year. But analysts expect a resurgence in 2023, even if the global outlook remains uncertain.
some Wall Street’s Biggest Banks have suggested in recent weeks that a combination of short-term tight supply and demand related to the long-term energy transition will push the red metal north from here.
Goldman Sachs strategists said in a report last week that bearish pressure in 2022 stemmed in part from the market’s persistent expectations of excess volatility in the metals market, which is indebted. anticipation of sluggish demand amid slowing global growth and accelerating mining activity.
However, this did not materialize and Goldman emphasized that the cathode market remains in a “clear deficit (GS estimate 210kt vs. 131kt previously), with global visible reserves shrinking”. down to a 14-year low,” said metals strategist Nick Snowdown.
“Equally important, the surplus we previously projected for 2023 (surplus 169k tonnes) has now also disappeared in our latest balance (GSe deficit 178k tonnes) “, he added.
The metal – used in many sectors – has also experienced a difficult 2022 due to tighter US monetary policy, the energy crisis arising from Russia’s war in Ukraine and the combination of China’s strict lockdown measures due to the Covid-19 pandemic and a weak real estate market. LME copper price peaked at more than $10,600/ton in March this year.
Goldman believes that if China relaxes restrictions on Covid-19 will move further towards reopening the economy, then a stockpile replenishment is likely to take place, Goldman believes.
“If China brings copper reserves as a ratio of consumption back to pre-2020 levels, that means physical demand will increase by 500,000 tonnes,” Snowdown said.
Three-month futures contract on the London Metal Exchange traded at $8,543 on Monday morning in Europe, after posting its strongest month since April 2021 in November on hopes demand will pick up if China eases. loose Covid-free policy.
Goldman last week increased its 12-month forecast to $11,000/mt from $9,000/mt and raised its median price forecast to $9,750/mt for 2023 and $12,000/mt in 2024.
Bank of America commodity strategists believe copper could rise to $12,000 a tonne in the second quarter of 2023, given the right conditions. Such a scenario would require the US Federal Reserve to pivot towards less aggressive monetary policy tightening, limiting the upside in U.S. dollarand demand remains supported as the planned energy transition accelerates.
“Despite the macro difficulties, the physical market remains scarce, indicating a current lack of co-forecasts,” said Michael Widmer, commodities strategist in Bank of America’s 2023 metals outlook report. room”.
Widmer also noted that global copper demand has proven resilient, growing year-to-date as purchases outside of China hit record levels.
While macroeconomic difficulties are likely to last through 2023, Widmer said the offset will remain positive when modeled against global GDP growth.
“Taking it one step further… China’s grid spending has offset weakness in the broader economy: indeed, electricity infrastructure construction has fully offset the weakness. in the housing market,” said Widmer, adding that the key question going forward is whether this is a one-off or the beginning of a structural trend.
He also noted that the correlation between global copper demand and industrial production growth has been broken for over a year and a half.
“In our view, this confirms to some extent that green spending has supported global copper demand and physical markets,” said Widmer.
Bank of America’s benchmarking data for zero demand growth from policy-related sectors shows copper consumption up 4.5% year-on-year through 2030. By contrast. , potential demand growth has been 2.1% over the past two decades, Widmer noted.
Consensus is more cautious
While taking a more cautious view to reflect weaker market sentiment due to the expected global recession, strategists at Fitch Ratings last week said any impact on copper would be offset. by “supportive short- and medium-term supply-demand dynamics.”
“We expect global primary copper consumption to grow moderately by around 2% in 2023, similar to 2022. Mine supply will increase by around 4% in 2020,” they said in a research note. 2023, although disruption could affect that.”
“A tight market balance and minimal global copper stocks (under two weeks consumption) should sustain prices in 2023. Copper’s long-term outlook is supported by demand from the energy transition. quantity.”
Fitch maintains its assumption of a spot copper price of $8,000/ton for 2023, falling to $7,500/ton in 2024 and 2025.
However, other institutions remain more bearish, at least in the short term. BNP Paribas in its 2023 outlook forecasts a three-month copper price of $6,800/mt in the first quarter of next year, falling to $6,465/mt in the second quarter, but recovering to $8,250/mt by the end of 2024. .
“We expect a drop in European manufacturing activity to add to the impact of slowing activity in China and the US,” the French lender said.
“Increasing mining supply and fast-rising Chinese refined copper production are expected to push the market into a significant surplus in 2023, easing LME arbitrage and putting pressure on price.”