There doesn’t appear to be a lot of consensus around the copper market.
On the one hand, according to Reuters, the International Copper Study Group (ICSG) reports the global refined copper market will be roughly balanced between supply and demand this year. Meanwhile, the group forecasts a significant supply surplus in 2022.
The ICSG is predicting a small deficit of 42,000 tons this year. As for next year, it predicts a wave of new mine supply will push the market into a surplus of 328,000 tons.
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Copper price picture
But Goldman Sachs is suggesting otherwise.
It says mine supply is likely to underperform, be late and, most importantly, a wave of refining disruption in China due to power problems is going to restrict supply and drive prices higher.
Just last week Goldman predicted $10,500 per ton, only for the spot price to break though it shortly thereafter.
The difference between the price for spot or prompt metal and that for delivery in three months on the LME has hit a record $350 per ton, according to the Financial Times.
In short, it is displaying all the hallmarks of a market under extreme duress.
Rapidly dwindling inventory levels also support the premise that supply is failing to keep up with demand. LME copper inventories not already earmarked for delivery stand at just 14,150 tons. That is down from more than 200,000 tons as recently as September.
Copper inventories plunge and the ‘green revolution’
Inventories of physical copper on the LME fell to their lowest levels since 1974 this week, according to Reuters, in a sign of strong demand. In a recent report, Goldman Sachs predicted metal stocks could reach an all-time low by the end of the year. Furthermore, it said stocks could “deplete entirely” by the second quarter of next year.
Some observers are pointing to the “green revolution” as a driver of copper demand.
Certainly, in the longer term that could well be right.
The Financial Times cites CRU, which estimates that the use of copper in various green technologies will hit 6 million tons by 2030. That would account for some 20% of global demand by that time.
But the reality is copper’s distress is much more to do with shorter-term disruption to the refining industry in China than longer-term industry trends.
So, who is right: the ICSG looking at mine supply or the investment community looking at refining constraints?
Unhelpfully, both could be right.
Mine supply is likely to improve, if not this year, then gradually in 2022. But that may fail to work through into lower refined copper prices if capacity bottlenecks in China are not resolved this winter. Indeed, the greater ore supply could result in higher treatment charges as refiners find they have the whip hand in a plentiful ore supply market but constrained refining capacity environment.
In the short term, there appears more risk to the upside than the down.
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