Copper seemed doomed not so long ago at the beginning and middle of the year, there was a huge deficit of 370,000 tons, according to the projections then managed by the International Copper Association (ICA). The uses of copper place it at the epicenter of various revolutions that They were going to generate a ‘boom’ on the demand side. This metal is used for electrical cables, motors, generators and components. This places it at the epicenter of the greatest production of electric cars, led by China and semiconductors. This, adding to the difficulties that arose in its offer, caused all analysts to assume that the metal was condemned to permanent increases.
For May of this year raw material prices had skyrocketed by 27% and there was little reason to expect anything to change. However, since then metal prices have sunk 19% and there is only a positive balance in 2024 of 3%, which could fade as the days go by, since the trend is downward.
There are multiple reasons but the fundamental one is that China has embarked on a true production fever as few remember. A possibility that seemed really complicated until not so long ago. The Asian giant has already increased its production by 5% so far this year. In 2023 China produced 1.7 million metric tons. China is the third power in the world behind Chile and Peru and is responsible for 8.6% of the planet’s production. Therefore, a boost of this level represents a paradigm shift for the market as a whole, especially given that China is the world’s largest consumer. Although the problem more than what has already increased are the projections of a massive expansion in the coming months and in 2025.
This, added to the lower general demand, will be the key to a totally unexpected surplus in 2024. At a global level, the Copper Council expects that the increase in copper orders refined copper by 2023 is only 2.2%, up to 26.14 million tons. While the hunger of the factories does not fulfill what was taken for granted, on the supply side the situation has also changed. Supply will grow to 26.71 million tons. That is, there would be a surplus given that growth will be 3.2%.
Such has been the turn in the situation that within the country itself they are asking to reduce plant projects to avoid huge losses in the foundries. According to CRU Group estimates, the price of metal refining could drop to $40 per ton compared to 80 dollars on average at which it was quoted in 2023. In that sense, it would remain on the verge of the historical lows of 2004. The employers’ association of China’s metallurgical sector assured that “Beijing should intervene to prevent a blind expansion that generates excess capacity.”
While on the supply side a tsunami of Chinese copper could flood the market, on the supply side there has also been a significant shock, both from China and the rest of the world. At the moment, China grew only 4.6% in the third quarter, below its 5% target and, therefore, less than what the markets expected. The country’s authorities themselves believed that they could be facing a stage of increasingly slower growth and a situation of almost deflation. A perspective that caused Beijing to announce a historic round of stimulus. These, in the first instance, did spark hope for green shoots in the Asian (and global) economy, but as more details have become known, there are more and more doubts.
It was first known about a plan of 260,000 million for real estate and consumption and, subsequently, another to flush out the debt of their leveraged local administrations. These measures have not completely convinced, although China itself has wanted to clarify that, in the absence of more ambitious and concrete measures, they have a “considerable margin” to increase their debt and launch into new ambitions. However, for now, this optimism has not spurred copper.
In particular, this comes from the Chinese construction sector, which is the largest devourer of copper in the world and which only projects a growth of 4% this year after the powerful declines that have occurred in recent years. In that sense, the public sector research firm, Antaike, commented in September that they expect, given these forecasts, that copper demand throughout China slows down to 2.4% compared to 5.3% last year mainly for this sector.
“The latest stimulus is to refinance local government debt, so that’s not going to boost physical demand much”
Similar estimates are given by the Copper Council, which, in its October report, comments that it expects demand from China of 14,603 million tons.slowing its growth to 2.6%. By 2025 they expect the slowdown to go further and remain at 1.6%.
This idea that Chinese stimuli will not save copper, as may have been thought in the first announcement, is something that the country’s main importer has already commented on. “The latest stimulus is to refinance local government debts“So that’s not going to drive physical demand much,” said Ni Hongyan, deputy general manager of Eagle Metal International. The firm handles 10% of all imports from China.
“The Chinese stimulus was not exactly what people expected and I still think it is difficult for the government to achieve a package that be really bullish for base metals“said the head of metals research at Bank of America, Michael Widmer. The last to speak on the subject was Citigroup in a report published this Wednesday and in which it reduced its short-term outlook from $9,500 to $8,500. The firm stated that, “China’s lack of flexibility to date has surprised us.”
The Trump factor
This new balance has been mixed in recent weeks with the election of Donald Trump. The tariffs will weigh in global industrial activity, weighing down demand and, furthermore, the prospect of these types of measures are giving life to the dollar. The raw material is denominated in this currency, so the currency effect is being decisive.
“Our view is that Trump’s policies – particularly higher tariffs and procyclical fiscal policy – will lead to a substantial appreciation of the dollar“said Jonas Goltermann, deputy chief markets economist at Capital Economics. That is why Citi analysts comment that “these (policy and currency) changes generate additional pressure on copper demand by inflating costs and, potentially reduce manufacturing production.
BHP believes copper demand will end up rising 72% sooner or later
In that sense, Nicholas Snowdon, head of metals research at Mercuria Energy Trading, commented that “the reality is that we are probably finding a new range given a price readjustment in the dollar.” However, the expert believes that “the structural story of copper is not dead, it is still very much alive and we believe that the momentum will prevail in the second half of next year.”
At that moment and with the Trump factor calmed down, the expert hopes that the reason why the world thought about an aggressive awakening of copper will be remembered, a demand whose inertia is towards increases. One of the largest firms in the sector, BHP, defended on the eve of the elections that we will see a certain weakness before “some solid increases.” The mining company estimates that, by 2050 ““Copper demand will skyrocket by 72%”.
Sooner or later the arrival of electric cars, data centers and renewable energies, all dependent on copper, will end up unleashing the potential of the raw material. It remains to be seen the speed at which this process will occur. and especially if the world can find an alternative supply. What is clear at the moment is that the short and medium term perspective is that the ‘battle’ for copper seems resolved, prices will be able to breathe and the threat of a great rebound is averted.
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