Copper price should rise

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At the start of the first corona wave in 2020, the price of copper dropped to as low as $4617 per tonne. But by early 2021, it was over $8,000. It has since climbed to $10,730 in the $8,500 to $9,400 range since early 2023. A ton of industrial metal currently costs US$8,870 (as of Thursday afternoon).

Copper also said, “Dr. Copper» is often considered a leading indicator for economic development. Because it is used in many sectors such as the electricity sector, the construction sector or computer circuit boards. If demand is here, the global economy is doing well.

However, its reputation as a “boost metal” has now been criticized by some experts. On the one hand, “Dr. For the copper industry. On the other hand, they point out that industry makes a much smaller contribution to the overall performance of the economy compared to the service sector.

Migros Bank economist Valentino Guggia confirmed in an interview with the AWP news agency that its reputation as an economic metal has been damaged again in recent months. The copper price rose rapidly and sharply in November despite the tense economic environment. The trend continued until January. A slight decline has been observed since then, but it is still listed at a high level.

There may be three main reasons for this extraordinary development: First, mining activities have been reduced due to the pandemic. Second, the mining and processing of copper is often not in the same place. Accordingly, disruptions in the supply chain and higher fuel prices would have increased copper prices.

And finally, on the supply side, there are disruptions in production, which has the effect of rising prices in South America. Migros Bank economist Guggia talks about production cuts due to the intense protests in Peru. There are also problems in Chile, adds Commerzbank analyst Thu Lan Nguyen. Production in the world’s most producing countries therefore fell to its lowest level since 2017 in February.

Nguyen emphasizes that the production weakness here is due to declining ore grades, water scarcity and operational problems. Still, the Chilean Copper Commission expects production to increase by about 6 percent in 2023 compared to the previous year; But many experts paint a more pessimistic picture.

UBS executive Dominic Schnider adds that the situation on the supply side may also be fraught in the long run. Copper experts have been talking about an impending increase in supply for years. This has not happened yet. There are always strikes or technical problems, especially in South America.

And the situation will not improve in the long run, as new metal deposits often need to be developed between 4,000 and 5,000 meters above sea level. “There’s a lack of water there, extraction is complicated,” Schnider explains.

Ole Hansen of Denmark’s Saxo Bank writes that there is still upside potential for commodities like copper if you combine supply and demand factors. In the long run, the main reason for this is the energy transition, for example in the automotive sector. “Electric vehicles, for example, contain much more copper than combustion engines,” explains UBS analyst Schnider.

However, in the short term, the current rise in China has a positive effect on demand. Schnider explains that about 50 percent of copper demand comes from the “Middle Kingdom”. And the Chinese were going to travel again after the long corona lockdowns, consuming again, so the economy was about to boom. Conversely, although signs in the US point to an economic downturn, only 10 percent of global copper demand comes from there.

Therefore, UBS is “rising” on the copper price outlook. According to Schnider, the price of copper per ton may rise again to $10,000 in the coming months and may even exceed this threshold by the end of the year. At least Migros Bank is talking about a “slight tailwind” for the copper price in the near future.

(SDA)

Source :Blick