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Copper May Fall $1,000/t as Demand Weakens and New Mines Bolster Supply

THE copper price was due for further weakness – possibly as much as 15% off currrent levels, analysts say. However, they disagree on the metal’s prospects…

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This article was originally published by Miningmx

THE copper price was due for further weakness – possibly as much as 15% off currrent levels, analysts say. However, they disagree on the metal’s prospects for the next two years owing to variances in the extent of supply growth.

Copper is trading at about $7,255 per ton representing a 26% decline year-to-date and 29% over the last three months.

Cost support for copper including sustaining capital expenditure – the price at which copper needs to be in order for breakeven output – is between $6,000 to $6,400/t. This implies “… more downside from here”, said Morgan Stanley in a recent report.

In January spot copper prices pushed through $10,000/t but the risk of global recession and Covid-19 lockdowns in China, complicated by Russia’s invasion of Ukraine, saw physical  inventories of the metal begin to rise by mid-year.

Copper inventories rose 31,000 tons to 69,000 tons between January and July on the Shanghai Futures Exchange while on the London Metals Exchange, inventories grew about 44,000 tons to stand at 133,000 tons by July, according to UBS.

While demand for copper is facing challenges, the ability of new supply to meet it is also in question, the bank said. “We still see an overall market deficit of around 87,000 tons in 2022 and 98,000 tons in 2023,” it said in a recent report. It assumes refined supply growth of 1.6% in 2022 and 3.3% in 2023.

Much depends on progress of recently commissioned projects such as Anglo American’s Quellaveco mine which produced first commercial copper this month and Ivanhoe Mining’s Kamoa mine in the Congo, which is also in ramp-up phase.

Morgan Stanley analysts said that the supply growth it anticipated previously tipping the copper market into surplus “has not yet fullly come through”.

“We also expect improved supply out of Chile in 2H with Escondida now showing better grades and some desalination coming through, improving water availability,” it said. A third mine – Quebrada Blanca 2 in Chile – is due for first production next year. “With this, our balance tips into surplus by 2023, even if demand holds up,” it said.

China stimulus and the impact of reduced gas supply to Europe are important factors in determining demand for copper.

A 60% reduction in Russian gas supply on its Nord Stream 1 has put “current metals balances in question”, said Goldman Sachs. Lower industrial production would be joined by power rationing to consumers the extent of which is yet to be quantified.

“Copper is the most vulnerable given to the high proportion of supply in gas-secure countries as well as a negative second round adjustment to consumer goods related demand from growth effects,” the bank said.

It estimates a net 117,000 softening in demand which would see the copper market in a balanced position for the remainder of the year. This equates to a 5% downside to the copper price, it added.

UBS said it was bullish for a recovery in the price of copper into 2023, however. “Structural drivers should allow prices to recover to $10,000/mt by 1H23, in our view,” it said.

The post Copper may fall $1,000/t as demand weakens and new mines bolster supply appeared first on Miningmx.

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