Amid supply-side disruptions and ongoing expectations of interest rate cuts by the Federal Reserve, copper, which has been highly volatile over the past year, appears to be showing signs of an upward breakout. Market sentiment has increasingly turned bullish. A report from Citibank suggests that copper prices could reach $15,000 per ton by 2025, surpassing the March 2022 peak of $10,730, a historic high. This would represent a 75% increase from current prices.
Fundamentally, copper prices are influenced by multiple factors, including supply-demand dynamics, macroeconomic conditions, global economic status, and geopolitical factors.
On the supply side, in November 2023, the Cobre Panamá, one of the world’s leading copper mines, ceased production due to environmental factors. Anglo American, a British mining group, also stated that it would cut copper production in 2024 and 2025 to reduce costs, reducing its 2024 copper production target from 1 million tons to between 730,000 to 790,000 tons. Previously, a major copper mine in Panama announced its closure, which is expected to reduce the global copper supply by 750,000 tons next year, equivalent to a 3% reduction.
Market experts generally expect around 400,000 tons of copper production to be impacted in 2024. Goldman Sachs also reported that they forecast a deficit of 534,000 tons in the refined copper market in 2024 (previously predicted at 155,000 tons), indicating a significant tightening from a “nearly balanced” state to a “clear deficit.”
On the demand side, the main downstream applications of copper are in power infrastructure, real estate and home appliances, and new energy vehicles. In fact, amidst weakening overseas metal demand, most of the copper demand is driven by China.
Overall, while traditional demand from real estate and home appliances has slowed, demand for copper in the new energy economy, represented by new energy vehicles, is rapidly growing. CICC predicts that global new energy copper consumption may increase by 570,000 tons to 3.53 million tons in 2024. According to CICC’s demand model, new energy demand has risen from 4% of China’s copper demand in 2018 to 14% in 2023, while demand from construction and traditional infrastructure has dropped from 53% to 47%.
Moreover, at the recent COP28 climate change conference held in Dubai, UAE, over 60 countries supported the goal of tripling global renewable energy capacity by 2030. Citibank predicts that renewable energy targets set by various countries will lead to an additional 4.2 million tons of copper demand by 2030, significantly boosting copper prices.
Macroeconomically, copper prices in 2023 are primarily influenced by the monetary environment. Copper’s financial attributes are closely related to the trajectory of the US dollar. At the end of 2023, with the Federal Reserve’s interest rate hike cycle reaching its peak and expectations of rate cuts continuing to ferment, the market consensus was that the Fed would cut rates as early as March 2023, supporting copper prices.
However, on January 5, the US reported that non-farm payrolls increased by 216,000 in December, significantly exceeding market expectations. This has cooled expectations of an early interest rate cut by the Fed, possibly leading to a sentiment correction in the market and a short-term pullback in copper prices.
Looking at China’s macro environment, in December 2023, China’s manufacturing PMI continued to decline, and the real estate recovery remains lackluster. The trillion-yuan national bond stimulus for infrastructure is expected to translate into physical demand in 2024, with the effects of domestic pro-growth policies to be verified after the Spring Festival.
Recently, Cinda Securities pointed out that at the end of the interest rate hike cycle, the “financial + industrial” attributes support the upward trend of copper prices. It is expected that copper will maintain a tight balance from 2023 to 2024, and the decline in resource endowments after 2024 will disrupt copper supply, potentially widening the supply-demand gap. Considering the impact of unexpected incidents in overseas mines, copper ore is likely to become even scarcer. On the demand side, traditional demand in power and home appliances is expected to continue supporting copper demand, with new energy emerging sectors driving copper demand significantly. Copper is expected to maintain a tight balance of 80,000 tons in 2024, with the gap expected to widen to 470,000 tons in 2025.
[Source – 上海有色网] 国际大行唱多金属铜！这些因素正在影响铜价 https://news.smm.cn/news/102568080
