Copper prices are recovering from a December fall when they hit their lowest point since October, this week (11 January) rising to $9,660 per tonne.
The industrial metals markets have become increasingly volatile with concerns over the Omicron variant, power supply restrictions in China reducing production and ` gradual relaxing of monetary polices in the US all coming into play.
In this article, we look at the recent trends and developments in the market and the latest copper price projections from analysts.
Copper slips lower from near-record high
Copper news has been dominated by power shortages in China, which have prompted local governments to ration supply to industrial users. This, in turn, has reduced metal production. And high energy prices internationally have pushed up production costs, with Brent crude oil hitting three-year highs and natural gas prices in Europe hitting record highs.
The copper price history chart shows that the metal, which is used extensively across industries from construction to automotive, energy and electronics, rose to $10,652 per tonne on the London Metal Exchange (LME) on 19 October, its highest level since May. The LME spot price slipped to $9,849.50 on 27 October, then ticked up to $9,955 per tonne on 29 October. On 11 January, the metal traded at $9,660 per tonne.
Money managers increased their long positions to their highest level since May 2021, analysts at Societe Generale noted, and the market saw a $1.9bn long building, the largest flow since the start of the bank’s records going back to 2006.
Money managers were bullish as global copper inventories fell sharply. LME copper inventories fell by 9% in the week to 15 October to 181,000 tonnes. Inventories on the Shanghai Futures Exchange (SHFE) in China dropped by 17% to 42,000 tonnes, the lowest since May 2009.
The copper price chart shows prices slipped from the highs as traders considered that continuing power cuts in China could reduce demand for copper from industrial users, which have had to reduce output. At the same time, the International Copper Study Group has forecast that world copper mine production could increase by about 2.1% in 2021 and 3.9% in 2022.
Following the price squeeze on the drop in inventories, some traders liquidated positions on the US Comex exchange and the SHFE in response to waning upside momentum. Analysts at TD Securities noted that with the copper market being driven by the power crunch, falling coal prices have pulled the market down from the highs. But inventories of coal at power plants in China are yet to rise, “potentially suggesting that the decline in coal prices has been precipitated by forced sales of private inventories – kicking the can down the road”.
What do the latest future copper price predictions from analysts suggest about the outlook for the market? Is it expected to remain volatile?
Copper price forecast: where next for the industrial metal?
Copper technical analysis from Zaner on 29 October showed that “while the technical bias is pointing down in copper, the reversal from the lows and a quasi-double low yesterday certainly deflates the confidence of the bear camp”.
The report added:
Based on the copper technical chart, “the next downside objective is 4.31. The next area of resistance is around 4.48 and 4.53, while 1st support hits today at 4.38 and below there is 4.31.”
Ole Hansen, head of commodity strategy at Dutch Bank Saxo, expects commodity prices including copper to find support. In a note published on 29 October, he said:
Hansen added: “Commodity prices depend not only on demand but increasingly also on the availability of supply and, with the above-mentioned factors in mind, we are seeing tightness developing across many individual commodities.”
Analysts at investment banks including ANZ in Australia, Commerzbank in Germany and Goldman Sachs in the US expect the LME spot market to return to a copper price target at the $10,000 per tonne level by the end of the year.
Analysts at Goldman Sachs remain bullish on the copper market. In its latest copper price analysis, the US investment bank noted that “as the cross-asset investor’s favourite barometer for global growth, copper often trades with shifts in broader macro sentiment. However, it is important to remember copper remains a physical good, whose futures price is ultimately tied to the ability to deliver physical units into the exchange… should those stocks deplete, its price must balance the market, regardless of what is occurring in the broader economy. We highlight this fact because copper is fast becoming the most mispriced commodity in the complex, in our view.”
The analysts maintain their LME copper forecast with a year-end price target of $10,500 per tonne, adding: “At the heart of our renewed bullish copper call – coming in spite of very real risks to the Chinese property sector and global growth – is the fact that the physical market is becoming increasingly tight, with minimal near-term risks to the balance in our view.“
For the longer term, Goldman Sachs predicted that copper prices could average $11,875 per tonne in 2022, $12,000 in 2023, $14,000 in 2024 and $15,000 in 2025.
The World Bank has an extended long-term forecast of $7,544 per tonne in 2025, $7,769 in 2030 and $8,000 per tonne by 2035.
At the time of writing, on 12 January, forecasting sites were also bullish on the copper outlook. Algorithm-based Wallet Investor had a US copper price prediction of $4.855 per pound for a year's time rising to $6.805 per pound at the start of 2027.
Gov Capital predicted that the US copper price could reach $6.6 per pound by the end of 2021 and rise to $6.81 by the start of 2027.
When considering analyst commentary and forecasting sites’ copper price projections, it’s important to keep in mind that they can and do get their estimates wrong. You should always do your own research, taking care to consider all relevant market conditions. Keep in mind that past performance is not an indicator of future returns.
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Copper prices are driven by physical supply and demand for the metal, macroeconomic data, the value of the US dollar and energy prices, among other factors
As with other commodities, some investors use copper as a hedge in a diversified portfolio. However, some are wary of the volatility on the copper market. Whether the metal is a suitable investment for you depends on your personal financial circumstances, asset allocation and risk tolerance. You should do your own research to help you make your own investment decisions.
Some analysts expect copper prices to rise by the end of the year on tight supply, then weaken somewhat into 2022. But prices are expected to remain relatively high compared with recent years on rising demand from the green energy transition.
Whether you believe those predictions is a decision only you can make. As always, you should be aware that the past price performance is no guarantee of future returns, and you should never invest more than you can afford to lose.
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