Copper prices will likely be volatile on weak global demand and the US dollar’s movement, though they are expected to improve in the second half of 2023.
Hope stems for the red metal — used in construction, power and electric vehicles — from China planning a stimulus package and a drop in production in top producer Chile by 14 per cent year-on-year (YoY) in May.
On the other hand, the Office of the Chief Economist, Australia, has an interesting reference to India, saying its consumption is expected to be strong in 2023.
Chinese growth pangs
“A slower-than-expected rebound in Chinese economic growth, combined with weak construction activity in Western countries, is putting downward pressure on copper prices. Growing demand from the power and EV sectors are key drivers of copper consumption over the outlook period,” it said in its “Resources and energy quarterly”.
According to the International Copper Study Group (ICSG), the world refined copper balance, based on Chinese apparent usage (excluding changes in bonded/unreported stocks), indicated a preliminary surplus of about 384,000 tonnes in the first four months of 2023.
“The world refined copper balance adjusted for estimated changes in Chinese bonded stocks indicated a market surplus of about 514,000 tonnes,” it said.
Price forecast down
However, the Trading Economics website said the combined copper stockpiles across the London Metal Exchange (LME), Shanghai Futures Exchange and COMEX, and Chinese bonded warehouses are down 55 per cent since March at 225,018 tonnes. This level of stockpiles represents a mere three days of global copper consumption in 2022.
Research analysts have lowered their price forecast for copper in 2023 with BMI, a unit of Fitch Solutions, projecting the average annual price at $8,800 a tonne (against $9,000 forecast earlier) “on the back of weak global demand, a consequence of the slowing global economy and Mainland China’s service-led recovery”. “Prices have averaged $8,750.30 in the year to date as of June 19 2023, lower than the average of USD8,788/tonne seen in full-year 2022,” the research agency said.
Bank of America Global Research lowered its copper price forecast to $8,788 ($9,427).
But the Australian Office of Chief Economist said prices will likely rebound in the second half of 2023. “Chinese policymakers have signalled an intent to maintain growth targets and may stimulate activity to compensate for a weak start to the year. Further, the US dollar may face downward pressure if the US Federal Reserve pauses its monetary tightening agenda,” it said.
Higher than pre-pandemic
Across the whole year, the LME spot price is forecast to average $8,600 a tonne. “Demand will be a stronger driver of price than supply over the year, with risks skewed to the downside if the Chinese recovery stalls, or major economies experience a hard landing,” the Australian office said.
BMI supported this view saying, “Our forecast of $8,800 for 2023 means we expect prices to see a slight jump in the short term, but remain under significant pressure as weak demand hammers prices.” Nevertheless, prices will remain elevated relative to pre-pandemic levels, supported by tightening exchange inventories and a slightly weaker dollar, BMI said.
Currently, copper for cash is quoted at $8,371 a tonne and the three-month contract at $8,388 on the LME.
ING Think, the financial and economical analysis wing of Dutch multinational services firm ING, said in May that copper has been weighed down by a strengthening dollar, which makes copper more expensive for Chinese buyers.
Rise in consumption
“… speculators have been decreasing their bullish LME copper bets – the net-long position is now the least bullish in more than 19 weeks at 38,416, as weekly exchange data on futures and options show,” it said.
Hope for higher demand from China has now faded with recent disappointing data showing a mixed picture for the world’s biggest consumer of copper, ING said.
Chinese SMM News said copper prices are ruling high and demand is weak on the consumption front. Copper prices are expected to be highly volatile before “the rate hike resolution is executed”, it said.
BMI forecast global copper consumption growth to rise in 2023 by 2.4 per cent to 27 million tonnes (mt), amid an uneven economic recovery in Mainland China and a drag from other economies. “We note that the green energy transition will partially offset this downside pressure,” it said.
Unlikely to see 2022 highs
The Australian Office of the Chief Economist said global refined copper consumption is forecast to grow to 26 mt in 2023 — an increase of 1.5 per cent year-on-year. “Copper consumption is expected to increase throughout the year, though downside risks associated with softening global growth are apparent,” it said.
ICSG said refined copper usage increased three per cent in the first four months with refined copper production increasing by 8 per cent.
BMI said though prices will likely improve from current levels in the second half of 2023, it does not expect a return to the highs seen in 2022 as China’s real estate sector remains in doldrums.
The Australian Office of the Chief Economist said copper consumption is expected to increase throughout the year, though downside risks associated with softening global growth are apparent.