Copper prices — traditionally a barometer for the global economy — are expected to soar next year

Copper cathode sheets 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 – has surprisingly had a difficult year. But analysts expect a rebound in 2023, even as the global outlook remains uncertain.

Some of Wall Street’s biggest banks in recent weeks have suggested a combination of short-term pressure and demand related to long-term energy changes will push the red metal north from here.

The downward pressure in 2022 was partly due to persistent market expectations of surplus volatility in the metals market, driven by expectations of slower demand amid slowing global growth and accelerating mining activity, Goldman Sachs experts said in a note last week.

However, this did not come, and Goldman pointed out that the cathode market remains “in a clear deficit (forecast of GS 210kt against 131kt before), and the visible stock of the world falls to the lowest level in 14 years,” metallurgist Nick Snowdown. he said.

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

Steel – which is used in many sectors – also endured a difficult 2022 due to US monetary policy, the energy crisis arising from Russia’s war in Ukraine and the combination of China’s strict Covid-19 ban and weak property market. LME copper prices rose above $10,600/t in March this year.

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If China relaxes its zero-Covid restrictions and moves forward with the reopening of the economy, a stock recovery is likely to play out, Goldman believes.

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“If China were to restore its copper stocks to consumption levels at pre-2020 levels, that would mean a 500kt increase in physical demand,” Snowdown said.

Three copper months ahead on the London Metal Exchange traded at 8,543 dollars on Monday morning in Europe, after posting their strongest month since April 2021 in November in the hope of increasing demand if China reduces its zero-Covid policies.

Goldman last week increased the 12 month 12 to $ 11,000 / t from $ 9,000 / t and improved its average price to $ 9,750 / t in 2023 and $ 12,000 / t in 2024.

Bank of America commodity strategists believe that copper may have $ 12,000 / t in the second quarter of 2023, given the right conditions. Such a situation will require a pivot by the US Federal Reserve to focus on monetary policy, to reduce inflation US dollarand that demand remains supported as the proposed energy transition accelerates.

“Despite headwinds, physical markets remain firm, highlighting the current shortage of copper units,” said Michael Widmer in Bank of America’s 2023 metals outlook report.

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Widmer also noted that global copper demand has proven resilient, rising year-to-date as imports from China run at record levels.

While macroeconomic headwinds will continue into 2023, Widmer said the outlook should remain positive when modeling global GDP growth.

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“Taking this step forward … China’s grid spending has reduced the weakness in the wider economy: in fact, building the electricity infrastructure has completely eliminated the weakness in the housing market,” said Widmer, adding that the main question going forward is whether this is a one-off or the start of a construction trend. .

He also noted that the correlation between the world’s copper demand and the growth of industrial production has been broken in the last year and a half.

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

Bank of America aggregated data on demand growth rates from sectors associated with net-zero policies showed an increase in copper consumption of 4.5% annually through 2030. In contrast, potential demand growth has been 2.1% over the past two decades. , Widmer noted.

Consensus is more prudent

Although taking a more cautious view to reflect soft market sentiment due to the expected global recession, Fitch Ratings planners last week suggested that any copper strike would be offset by “support for short- and medium-term demand drivers.”

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“We expect an average increase in global copper consumption of about 2% in 2023, similar to 2022. Mining supply will grow by about 4% in 2023, although disruptions may affect that,” they said in a research note.

“A tight market and small global copper reserves (with less than two weeks of consumption) will sustain prices in 2023. Copper’s long-term prospects are supported by demand for energy transitions.”

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Fitch has kept spot copper prices at $8,000/t in 2023, sliding to $7,500/t in 2024 and 2025.

However, some institutions maintain a more bearish outlook, at least in the short term. BNP Paribas in 2023 predicts 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 returning to $ 8,250 / t at the end of 2024.

“We expect a fall in European output in addition to the impact of slowing activity in China and the US,” the French lender said.

“Rising mining supply and accelerating Chinese refined copper output are expected to push the market into a larger surplus by 2023, reducing LME volatility and price pressures.”

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