Everyone’s agreed that copper is one of the key renewable metals - along with lithium, cobalt and aluminium. Everyone thinks that copper will boom in years to come - and yet its price has spent most of 2023 slowing sagging and quite a few previously bullish analysts are now not so optimistic.
But that loss of enthusiasm has more to do with the unsettled outlook for the global economy (and especially the economies of the US, EU and China, where that country’s stricken property sector is perhaps the biggest single negative for copper at the moment).
The high value of the US dollar, rising US interest rates and a growing fear that the much forecast recession will mug us in 2024 are some of the reasons why the bloom has gone off copper for many believers.
As well, rightwing politicians in the US, UK (especially so), New Zealand and parts of Europe are hauling back in previously optimistic deadlines for renewables, especially for electric vehicles and the associated infrastructure.
Global ratings group, Fitch, through its BMI Metals Industry research arm, still thinks the future for copper is rosy but at the same time sees a spot of short-term price weakness heading into 2024 and 2025.
In a report issued this week, BMI downgraded its 2023 average annual copper price forecast to $US8,550 a tonne (around $US3.81 a pound, compared to the current Comex front month price of $US3.56 a pound). Comex prices are down around 6% year to date in 2023.
The revision is down from the previously forecast $US8,800 a tonne as those fears about the strength of the greenback and rising US rates (and the Fed’s next policy move) impose a cap on the price (and prices of other commodities, with the exception of oil).
London Metal Exchange prices are now just under $US8,000 a tonne, around 15% down from the 2023’s to date high of $US9,356 per tonne. (about $US4.46 a pound)
BMI said the forecast of $US8,550 a tonne for this year means an expectation for prices to remain under significant pressure in December quarter as weak demand and rising inventory levels undermine prices.
Prices have been on a steady downward trend since mid-January 2023, after peaking at $US9,356 a tonne on January 23, as expectations of a strong rebound in Chinese demand failed to emerge - with the property overhang a major impediment.
Economic recovery in Mainland China remains uneven, as the country’s manufacturing PMI is barely growing according to official activity surveys, or contracting according to another survey.
Chinese imports of copper metal are down this year. In the 8 months January-August, Chinese copper imports were down 4.8% at 4.07 million tonnes from the same period in 2022. But imports of copper ore and concentrates are up on 2022.
Globally, weak growth persists, limiting demand growth for most metals, with a forecast global growth of 2.5% in 2023, down from the 3.1% in 2022 and the 6.1% in 2021. when economies rebounded from the lockdowns.
Global growth for 2024 is uncertain and around 2% or less for major economies (outside China) - new forecasts for this year, 2024 and 2025 will be released next week by the IMF.
Despite these hindrances, BMI still expects the copper market to remain in deficit in the medium to long term as the accelerating green transition demands more renewable metals.
BMI is predicting a surplus of 236,500 tonnes in 2024, with Peruvian and Chinese rising and offsetting supply issues in Chile where Codelco is battling under investment, a shortage of new funds and political pressure to oversee the country’s rich lithium reserves.
Prices are forecast to reach $US11,500 a tonne in 2032 as the long-term structural deficit persists due to a strong long-term demand outlook. BMI reckons there could be a supply deficit of 1.2 million tonnes by 20232 (which is really too far to be anything but a guess).
The Australian government's September edition of its Resource and Energy quarterly contained a fairly optimistic short term outlook for copper.
But BMI (and other forecasters) believe supply growth will be increasingly outpaced by demand as copper is required in almost every aspect of the green energy transition.
They say copper use is not only 58% higher in electric vehicles compared to internal combustion engine cars, but also is contained in far higher concentrations in renewables compared to coal plants.
“Supply growth will be increasingly outpaced by demand. Copper is required in almost every aspect of the green energy transition,” so the story goes.
“According to the IEA, battery electric vehicles require approximately 53.2kg of copper, 58.1% more copper than the 22.3kg needed in the production of internal combustion engine vehicles (ICEs).
“Offshore wind, onshore wind and solar power sources require 8,000kg, 2,900kg and 2,822.1kg of copper respectively, significantly more than the 1,150kg required in coal-fired power plants.
“This will push the (copper) market into greater deficit and drive prices higher towards the end of the decade. We will also continue to see some growth in the global construction industry, a driver of copper demand unrelated to the green energy transition.”
That’s why BHP paid $A9.8 billion for OZ Minerals copper, gold and soon, nickel production from South Australia, WA and Brazil and why Newmont is in the closing stages of wrapping its bid for Newcrest with its copper especially in Australia.
It’s also forced Vale, the big Brazilian iron ore miner, to finally recognise the importance of its base metal businesses - especially copper and nickel - operations in Canada and in Brazil.
But before then the Chinese property sector has to be sorted out and rightsized and there is no sign of the Government of President Xi Jinping doing that.
ING Think, the financial and economic analysis wing of Dutch bank, ING, said China’s recovery is still uncertain, with anything related to real estate continuing to struggle.
“For copper, risks remain to the downside heading into the year’s end on China’s uncertain outlook for the property sector. We believe commodity-intensive stimulus is needed to support short to medium-term demand growth,” it said.