Is it copper’s time again?
The metal’s cheer squad certainly believes so, judging by comments at this week’s conference and analyst reports.
The Financial Times Commodities Global Summit heard upbeat commodities outlooks from a senior executive at commodities trading giant, Trafigura and a separate upbeat assessment from Goldman Sachs analysts.
The bullishness was almost enough to set fire to the share prices of major copper companies, but it didn’t.
The GS outlook was broad-based and linked especially to the current instability in global financial markets, especially amongst banks.
Goldman Sachs expects a commodities supercycle driven by China and the capital flight from energy markets and investment this month after concerns triggered by the banking sector, the US bank’s head of commodities said.
“Historically, when you have this kind of scarring event, it takes months to get capital back … We will still get a deficit by June and it will drive oil prices higher.”
Oil prices tanked to 15-month lows earlier this week off the back of the crisis at Switzerland’s second-biggest bank Credit Suisse, which in turn followed the collapse of two US lenders
Currie emphasised the hit was to the supply side rather than demand and he remains very bullish on copper.
“The deposits have already left …Cash is going into money markets not into the banks.”
“On copper, the forward outlook is extraordinarily positive. We’ll be at the lowest observable inventories that have ever been recorded at 125,000 tonnes. We have peak supply occurring in 2024…Near term we put (the copper price) at $10,500 and longer term our price target is $15,000 a tonne.”
But not all commodities went south (led by oil). Iron ore has held up reasonably well – in fact it rose past $US130 a tonne last week (and has dipped back this week to under $US120 a tonne on Thursday) and gold of course topped $US2,000 an ounce on Thursday of this week and remains solidly higher than when the bank problems first emerged on March 9 with the problems at Silicon Valley Bank and then its failure.
A day earlier, the co-head of metals and minerals at the world’s biggest copper trader told the summit the copper price could hit a new record high within the next 12 months owing to very tight stocks, even above $US12,000 a tonne.
“I would highlight copper as the most critical metal globally given the shortage in the market. We only had 3.5 days of copper stock equivalent at the end of last year,” Trafigura’s Kostas Bintas told the FT Commodities Summit.
Copper hit a record high $US10,845 in March last year in the immediate aftermath of the Russian invasion of Ukraine in late February. It was trading around 4US4.10 a pound on Comex on Thursday, up around 7% year to date 9and more than 5% since last Friday).
And last week, Glencore CEO Gary Nagle told Bloomberg that his company is the cheapest way to buy exposure to a coming copper boom as he predicted a renewed spree of dealmaking in the mining industry.
Glencore is one of the world’s major producers of copper, as well as cobalt and nickel – all EV battery materials in rising demand.
“If somebody wants to buy copper, we are the cheapest copper business there is in the world today, in my opinion, with a million tonnes of copper already,” said Nagle.
Glencore controls Mount Isa mines in northwestern Queensland (and thermal coal mines in Queensland and NSW).
Copper prices have dropped since late January due to a slower-than-expected demand recovery following the Lunar New Year holiday and the US Federal Reserve’s hawkish tone on interest rates. Increased scrap availability has also contributed to an oversupply in the Chinese market.
However, the tighter copper supply outside China driven by significant maintenance outages at key smelters has prompted forecasters to cut their global refined copper balance forecasts for 2023 to less than 80,000 tonnes.
The short-term outlook for copper is “pretty healthy,” with global stockpiles trending down and mine disruptions having eroded supply from Latin America, Rio Tinto’s head of copper Bold Baatar said last week
“We’re seeing pretty good fundamentals,” he told Reuters after the opening of the underground phase of Rio’s Oyu Tolgoi copper mine in Mongolia, which is set to be the world’s fourth-largest copper mine when it is fully operational.
“Physical stocks of inventories of copper are at multi-year lows,” he said, adding that copper demand in China was “relatively strong.”
Global copper inventories held in warehouses monitored by the London Metal Exchange (LME) hit the lowest in 17 years last month as the global economy gathers steam post-COVID 19, while Shanghai Futures Exchange stocks have turned down in recent weeks on seasonal demand pickup and as prices fell.
“Overall, actually, there’s significant copper shortages in terms of the supply deficit that’s coming out of Latin America and the disruptions that are happening in countries like Peru.
“So at the moment, even in the short-term outlook, there’s a pretty healthy demand picture,” Baatar said.
Copper mines in Peru (especially the Chinese-owned Las Bambas in Peru) and Chile have been disrupted by protests that have blocked roads, impacting mine supplies getting in and concentrate shipments getting out.
Chile’s onerous mining royalty and other tax changes now look like they are yesterday’s news which should be a big relief to copper miners in that country as well as the likes of Peru and Argentina.
