Copper supply expected to run into deficit in 2021 (Analysts)
Copper was already trading near its eight-year highs in January, but red metal prices surged again in mid-February, with March contracts hitting $ 4.12 a pound on February 22 – approaching a All-time high of $ 4.58 a pound in 2011., as investors bet the tight supply will increase as the world gradually recovers from the covid-19 pandemic.
Natalie Scott-Gray, Senior Metals Analyst at StoneX, predicts demand for copper in 2021 to grow about 5% year-over-year, beating supply, which she expects to grow by 2.3 % year over year. If his forecast comes true, that means the global copper supply will drop from a small surplus in 2020 to a potential deficit of over 200,000 tonnes of copper this year. “We do not expect a recovery in global supply this year, with Chinese markets more or less balanced,” she said in an interview.
The surge in copper prices has driven up the share prices of metal miners
Copper stocks in warehouses registered on the London Metal Exchange as of February 19 were trading at 75,700 tonnes, near a 15-year low of 75,550 tonnes in September 2020.
In some areas of the physical copper market, supply is at its tightest level in years and could come under even greater pressure as smelters in China face declining profit margins to process the ore crude refined metal, with copper processing fees, an indicator of refining margins, at US $ 50.16 per tonne, the lowest since 2012, according to a Bloomberg report on Feb.22.
Scott-Gray expects demand for copper outside of China to start picking up in the third quarter, when some of the lockdowns due to the Covid-19 pandemic, especially in Western countries, begin to lift. mitigate. The electrification of the automotive industry, energy storage, and 5G networks, among others, will drive demand for copper. “Overall this provides a very optimistic narrative for copper which will increase demand in the medium term.”
On February 11, Reuters reported that the European Automobile Manufacturers Association said the EU should target one million charging points for electric vehicles by 2024 and three million by 2029 to support the electrification of the automotive industry in Europe.
While those goals may not necessarily be met, BMO’s Colin Hamilton said in a research note to clients on Feb.12. “We see the European EV sector as one of the investments in the accompanying charging infrastructure. ”
He noted that the EU currently only has around 225,000 public charging points and that the additional growth “should be a net positive for copper demand”.
Soaring copper prices pushed up stock prices for metal miners, and some rose double-digit last month.
Jiangxi Copper, China’s top producer, is now trading at $ 30.32 per share in Hong Kong, the highest level since mid-September 2011, while Freeport-McMoRan (NYSE: FCX) is trading at $ 37.57 per share, the highest since November 2012.
In the medium term, prices should remain on an upward trajectory. “In the longer term, as demand begins to accelerate at a slower rate, improvements in the supply of scrap occur, and some recovery occurs on the primary supply side, prices copper will begin to level off in the middle and end of the decade. Scott-Gray said.
The secondary market for copper scrap will play an increasingly important role in meeting future demand, she said, stressing that copper does not lose its properties or quality when recycled.
Although copper recycling rates are already significant, with more than a third of the world’s copper currently being produced via secondary markets, she believes there is still room for further growth.
“We have already seen improvements – with China’s new import legislation on copper scrap, which will reduce the country’s dependence on primary demand in the country this year compared to last year – as well as [the recovery of] quota controlled imports of scrap copper into China [after a ban in 2018], ”she said.
The increased push for electrification is also expected to open the doors to further investment in copper recycling.
