Go to Dominos and Order a Copper Pizza ‘Cos Fitch Sees the Metal at $11,500 by 2031

• Fitch Country Solutions and Industry Research has lifted its near term copper forecast for 2023  
• Longer term analysts say demand growth from the green transition will power deficits to a record US$11,500/t by 2031
• Supply challenges from unrest in Chile, Peru and Panama remain a concern, but expected to ease

In a boon for both miners and organised criminals who strip wiring and sell the scrap metal, more analysts are adding their voice to long-term forecasts that copper is ready to boom.

Fitch Solutions Country Risk and Industry Research has brightened its three to six month outlook on the metal, renowned for its capacity to predict changing winds in the global economy, and added its name to voices like Goldman Sachs that the commodity will see a windfall from the shift to EVs and renewables.

Analysts for the agency said last week the it would lift its 2023 forecast for copper pricing from US$8400 to US$8500 per tonne on a weaker supply outlook and growing demand from a rebound in the mainland China economy.

“Going into 2023, we are revising up our copper price forecasts to 8,500/tonne, from 8,400/tonne previously, as demand edges higher alongside a comparatively weaker supply outlook,” Fitch said in a note.

“On the demand side, we expect a rebound in Mainland Chinese copper demand to boost prices along with a weakening US dollar.

“On the supply side, we expect operational issues to persist in Latin America with minimal increases to output in 2023.”

By 2031 a long-term structural deficit will emerge, propelling prices to US$11,500/t, Fitch says.

“In the longer term, we expect the copper market to remain in deficit as the green transition accelerates along with the demand for ‘green’ metals including copper,” analysts wrote.

Not the first

Fitch is not the first nor the last investment bank or analysis provider to take a bullish long-term view on copper.

Canaccord Genuity’s Reg Spencer told Stockhead recently that the sector was one to watch, with juniors primed for a re-rate as investors go hunting lesser lights to tap into the thematic in the fallout of long-term copper bellwether OZ Minerals’ (ASX:OZL) likely $9.6 billion buyout by BHP (ASX:BHP).

The aforementioned Goldman Sachs has delivered a range of bull cases in recent years, with commodity strategist Nicholas Snowden musing in mid-2022 US$100,000/t was not out of the realm of possibility.

We’re not holding our breath on that one. Copper was only buying US$8590/t yesterday.

But Goldman’s assessment that a US$13,000/t incentive price would be needed to actually bring the mines needed to fill the green technology order book was a little closer to the bone.

Fitch sees the prospects for a number of new operations to be developed by 2031, with a ‘significant pipeline’ in Chile, Peru, Australia and Canada, expecting regulatory issues in Latin America that have stalled projects in places like Chile, Peru and Panama to ease in coming years.

But demand will continue to outpace supply, with Fitch expecting a ~600,000t deficit by 2031.

“From around 2026, however, these improvements in supply will be increasingly outpaced by demand growth from the global transition to a green economy,” they wrote.

“Our Autos team forecasts global EV sales to increase 279% from 2021 to 2031, and reaching 24.7mn units per year by the end of the forecast period.

“According to the Copper Alliance, plug-in hybrid electric vehicles (PHEV)s contain approximately 60kg of copper metal, and battery electric vehicles (BEV)s contain around 83kg.

“This contrasts with conventional automobiles, which contain on average between 8kg and 22kg of copper metal. This will push the market into greater deficit and drive prices higher towards the end of the decade.”

What’s driving copper right now?

Copper should, theoretically, have suffered a far worse 2022 than it did.

Powered to near record highs in the wake of Russia’s invasion of Ukraine in March, the commodity fell from above US$10,000/t to under US$7500/t by October as China’s Covid outbreaks and lockdowns in the east and steep interest rate to contain inflation in the west hampered demand.

But prices were propped up by a collection of supply issues in Latin America, where major producers Chile and Peru are going through periods of political and social unrest, labour disputes and Government plans to raise taxes on miners.

Production fell 4.5% YoY in Chile from January to October.

The supply challenges led to decades low warehouse inventories, a situation that saw physical demand for copper and backwardation (when immediate demand means metal now is worth more than metal for future delivery) at long-term highs in October.

Demand is showing signs of returning, especially in China, where easing of lending policies around property developers is grinding up against rising Covid cases.

“Beijing may allow some firms to add leverage by easing borrowing caps and push back the grace period for meeting debt targets,” ANZ’s Gregorius Steven said in a note yesterday after copper lifted 2.6% on Friday.

“These were part of the “three red lines” policy that contributed to the downturn in recent years. However, the optimism may be tempered by the country’s current wave of COVID-19 cases.”

But Fitch warned all time highs are unlikely in 2023.

“Despite our prognosis for prices to increase from current levels in 2023, we do not expect prices to reach the all-time highs we saw in 2022 as the market stabilises, due to relatively more stable supply-side conditions alongside the persistence of a weak global economic environment (outside Mainland China) following us into 2023,” analysts said.

“Consumers will continue to spend cautiously, preventing prices from reaching record highs seen in 2022.”

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