Copper: Immediate Cheer Unlikely, But That Could Change

Copper: Immediate Cheer Unlikely, But That Could Change  | Jan 09, 2019 13:25

Is there salvation for copper prices in the new year? The short answer seems to be “not much.”It’s, nevertheless, a question worth asking, given the sheer importance of the commodity to the world.

Once regularly used as a gauge of global economic health due to its presence in everything from phone cables to power turbines—to the extent, it’s even called Dr. Copper—the red metal is increasingly looking like the forgotten stepchild of commodities.

Copper Weekly Chart

Since 2019 began, it has gained just over one percent, settling down in almost as many sessions as it settled up.

A Sell Call By Technical Analysts

At Tuesday’s close, US copper’s benchmark March contract on the COMEX division of the New York Mercantile Exchange closed at $2.6560 per lb, trading at around the 20-Day Moving Average and well below metals bulls’ target of $3 per lb.

Technical analysts on have a “Sell” call from the 50-Day Moving Average of $2.725 to the 200-Day Moving Average of $2.85.

In contrast, crude oil, the world’s other top industrial commodity, has jumped nearly 20 percent from Christmas Eve lows, shooting past the key $50 per barrel bullish mark just a week into the new year.

Goldman Sees Near Term Decline Too

Top Wall Street forecaster Goldman Sachs sees London-traded copper futures at $6,100 a metric ton in three months and $6,400 in six, down from earlier forecasts of $6,500 and $7,000, Bloomberg reported earlier this week. The 12-month target was held at $7,000, it said.

Goldman cited China’s economy, which it said had “decelerated notably,” though it also expected policy makers in Beijing to stoke expansion in the second half, which could result in a revival in prices of both copper and aluminium, another major base metal.

In 2018, copper futures fell almost 20 percent, the first annual loss in three years. In fact, nearly every base metal traded in London and New York finished last year with double-digit losses despite top commodities buyer China halting its tariffs battle with the United States on December 1, amid expectations of an imminent deal between the two economic superpowers.

Trade Talks Haven’t Helped Copper

With high-level US-Sino trade talks resuming this week, copper remains unable to rally despite the United States being one of China’s biggest scrap copper suppliers.

The weak price action now is partly due to headlines from late last year about excessive production that hit sentiment. That includes a 7 percent output hike reported by top copper producer Chile in November, to 540,720 tons—the highest since 2005, thanks to higher ore grades and more efficient processes.

But data compiled by Fitch Solutions, the forecasting unit of the Fitch credit rating group, shows that supply-demand statistics for copper could improve over the next two years.

Next Two Years Could See Demand Accelerate, Production Decline

The rating agency forecasts that global copper demand will increase from 23.6 million tons in 2018 to 29.8 million by 2027, at a 2.6 percent annual growth.

It says that, notwithstanding Chile’s mountainous production in November, global refined copper balances were expected to have registered a deficit of 247,000 tons in 2018, and will likely remain under-supplied through 2021.

The growth in demand will be powered by rising electric vehicle (EV) production and a positive global economic growth outlook. There are 300 kg (662 lbs) of copper in an electric bus and nine tons per windfarm megawatt.

Based on Fitch Solutions analysis, global refined copper demand will outpace production and the market will be in deficit over the next couple of years at least. Fitch specifically forecasts the global refined copper balance to register a deficit of 247,000 tons in 2018, and to remain under-supplied through to 2021.

Beyond 2021, Supply Could Spike Again

Beyond that, the agency expects the global copper deficit to shrink and oversupply to return as copper producers invest in new projects. It predicts China will be a driver of global copper production growth, increasing output from 8.8mnt in 2018 to 11.4mnt by 2027, averaging 3.1 percent annual growth.

Chile will also not want to lose out from potentially strong copper prices in the next two years.

India is expected to emerge as another star on the global copper production stage despite the closing of Vedanta Resources's (NS:VDAN) Sterlite copper smelter on environmental grounds. Fitch Solutions forecasts India’s refined copper output will increase from 925,000 tons in 2018 to 1.8 million by 2027, averaging 7.3 percent annual growth.

The Fitch group says US supply will also overshoot demand as US President Donald Trump's pledged infrastructure package falls short of market expectations.

Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (India) English (Canada) English (Australia) English (South Africa) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 中文 香港 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
Saving Changes