Copper prices, traditionally a barometer for the global economy, are expected to jump sharply next year | Bot To News

Sheets of copper cathode are shown at BHP Billiton’s Escondida, 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 – had an unexpectedly tough year. But analysts expect a rebound in 2023, although the global outlook remains highly uncertain.

Some of Wall Street’s biggest banks have suggested in recent weeks that a combination of short-term tight supply and long-term demand related to the energy transition will push the red metal north.

Downward pressure in 2022 stemmed in part from persistent market expectations of a surplus in the metals market, driven by expectations of sluggish demand amid slowing global growth and accelerating mining activity, Goldman Sachs strategists wrote in a note last week.

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

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

The metal, which is used in many sectors, also weathered a difficult 2022 due to tighter US monetary policy, an energy crisis stemming from Russia’s war in Ukraine and China’s combination of strict lockdowns due to Covid-19 and a weak property market. LME copper prices peaked above $10,600/t in March this year.

If the easing of non-Covid restrictions in China were to make further progress towards reopening the economy, there would likely be a restocking, according to Goldman.

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“If China were to return its copper stock-to-use ratio to pre-2020 levels, this would represent as much as a 500kt increase in physical demand,” Snowdown said.

Three-month copper futures London Metal Exchange traded at $8,543 in Europe on Monday morning after November posted its strongest month since April 2021 on hopes of a pick-up in demand if China eases its no-Covid policy.

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

Bank of America commodities strategists believe copper could rise to $12,000/t in the second quarter of 2023, given the right circumstances. Such a scenario would require the U.S. central bank to steer toward less aggressive monetary policy tightening, which would limit the upside American dollarand that demand remains supported as the planned energy transition accelerates.

“Despite macro headwinds, physical markets have remained tight, suggesting a lack of spare copper units currently available,” Michael Widmer, commodities strategist, said in Bank of America’s Metals Outlook 2023 report.

Widmer also noted that global demand for copper has proved resilient, increasing year-to-date as purchases outside of China are at record levels.

While macroeconomic headwinds are likely to persist into 2023, Widmer said consumption should remain positive based on global GDP growth.

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“If we take it a step further … China’s grid consumption has offset the weakness in the broader economy: in fact, the build-out of electricity infrastructure has completely offset the weakness in the housing market,” Widmer said, adding that the key question going forward is whether this is a one-off or incipient. structural trend.

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

“In our view, this confirms to some extent that green consumption has already supported global copper demand and physical markets,” Widmer said.

Bank of America’s aggregated data on demand growth rates from sectors associated with the net-zero policy shows copper consumption increasing by 4.5% year-on-year until 2030. In contrast, potential demand growth has been 2.1% over the past two decades. , Widmer noted.

Consent more cautiously

While taking a more cautious view to reflect softer market sentiment as a result of an expected global economic downturn, strategists at Fitch Ratings last week suggested any blow to copper would be offset by “supportive short- and medium-term supply and demand factors”.

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

“A tightly balanced market and minimal global copper supplies (less than two weeks’ consumption) will support prices in 2023. Copper’s long-term outlook is supported by demand from the energy transition.”

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Fitch maintained its spot copper price assumption of USD 8,000/t for 2023, falling to USD 7,500/t in 2024 and 2025.

However, other institutions remain more bearish, at least in the short term. In its 2023 outlook, BNP Paribas 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 quarter, but recovering to $8,250/t by the end of 2024.

“We expect the fall in European manufacturing activity to increase the impact of the slowdown in Chinese and US activity,” the French lender said.

“Rising mine supply and accelerating Chinese refined copper output are expected to push the market into a significant surplus in 2023, reducing LME spread tightness and impacting prices.”

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