Copper prices – traditionally a barometer of the global economy – are set to soar next year

Copper cathode sheets are pictured at BHP Billiton’s Escondida, the world’s largest copper mine, in Antofagasta, northern Chile, March 31, 2008.

Ivan Alvarado | Reuters

Copper – traditionally seen as a leading indicator of economic health – unsurprisingly had a tough year. But analysts expect a resurgence in 2023, although the global outlook remains highly uncertain.

A part of Biggest Banks on Wall Street recent weeks have suggested that a combination of short-term supply tensions and long-term demand linked to the energy transition will push the red metal north from here.

Downside pressure in 2022 stemmed in part from lingering market expectations of an excess inflection in the metals market, driven by anticipation of sluggish demand amid slowing global growth and accelerating mining activity, Goldman Sachs strategists said in a note last week.

However, this did not materialize, and Goldman pointed out that the cathode market remained in “clear deficit (GS estimate of 210kt vs. 131kt previously), with global visible inventories falling to a 14-year low. “said metals strategist Nick Snowdown. said.

“Equally important, the surplus we previously expected for 2023 (surplus of 169 kt) has also disappeared in our latest balance sheet iteration (GSe deficit of 178 kt),” he added.

The metal – used in many sectors – has also had a difficult 2022 due to the tightening of US monetary policy, the energy crisis resulting from Russia’s war in Ukraine and China’s combination of strict security lockdowns. Covid-19 and a weak real estate market. LME copper prices peaked at over $10,600/t in March this year.

If China’s easing of its zero Covid restrictions makes further progress towards reopening the economy, resupply is likely to play out, Goldman believes.

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“If China were to bring its copper inventory back to its consumption ratio at pre-2020 levels, it would imply up to 500 kt of increase in physical demand,” Snowdown said.

Three-Month Copper Futures Contracts on the London Metal Exchange was trading at $8,543 on Monday morning in Europe, after posting its strongest month since April 2021 in November on hopes of a boost in demand if China eased its zero-Covid policies .

Goldman last week raised its 12-month forecast to $11,000/t from $9,000/t and raised its average price forecast to $9,750/t for 2023 and $12,000/t in 2024.

Commodity strategists at Bank of America believe that copper could climb to $12,000/t in the second quarter of 2023, given the right circumstances. Such a scenario would require a pivot by the US Federal Reserve towards less aggressive monetary tightening, limiting the rise in the American dollarsand that demand remains strong as the planned energy transition accelerates.

“Despite the macro headwinds, physical markets remained stretched, underscoring the lack of spare copper units currently available,” commodity strategist Michael Widmer said in Bank of Canada’s 2023 Metals Outlook Report. America.

Widmer also noted that global copper demand has proven resilient, rising on a year-to-date basis with purchases outside of China hitting record highs.

While macroeconomic headwinds will likely persist through 2023, Widmer said drawdowns are expected to remain positive when modeled on global GDP growth.

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“To go further… China’s network spending has offset the weakness in the broader economy: indeed, the construction of electricity infrastructure has completely offset the weakness in the housing market,” said Widmer, adding that the key question going forward was whether this was a one-off or the start of a structural trend.

He also noted that the correlation between global copper demand and industrial production growth has collapsed over the past year and a half.

“In our view, this provides some confirmation that green spending has already supported global copper demand and physical markets,” Widmer said.

Data compiled by Bank of America on demand growth rates from sectors tied to net zero policies indicated a 4.5% year-over-year increase in copper consumption through 2030. By contrast, potential demand growth has been 2.1% over the past two decades. , noted Widmer.

More cautious consensus

Although taking a more cautious view to reflect weaker market sentiment in the wake of the expected global economic slowdown, strategists at Fitch Ratings suggested last week that any hit to copper would be offset by “factors favorable to supply and demand in the short and medium term”.

“We forecast a moderate increase in global primary copper consumption of around 2% in 2023, similar to 2022. Mine supply will increase by around 4% in 2023, although disruptions may affect this,” they said. they stated in a research note.

“A tightly balanced market and minimal global copper inventories (less than two weeks of consumption) will support prices in 2023. The longer-term outlook for copper is supported by demand from the energy transition.”

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Fitch maintained a copper spot price assumption of $8,000/t for 2023, sliding to $7,500/t in 2024 and 2025.

However, other institutions maintain a more bearish view, at least in the short term. BNP Paribas, in its 2023 outlook, forecast a three-month copper price of $6,800/t in the first quarter of next year, falling to $6,465/t in the second, but recovering to $8,250/t by the end of 2024.

“We expect a decline in European manufacturing activity to add to the impact of slowing Chinese and US activity,” the French lender said.

“Increasing mining supply and accelerating Chinese refined copper production are expected to push the market towards a significant surplus in 2023, mitigating the tightening of LME spreads and weighing on prices.”

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