Amid economic pressures, metals markets remain highly volatile. Copper's price fell sharply in 2022 owing to the worries of a global recession, China's COVID woes, real estate worries, and supply constraints. However, Copper price began to rebound as investors flocked back to it in the first months of this year.
Where next for the copper price? In this article, we will take a look at the long-term forecast for Copper and what are some of the factors that can influence its price.
Copper may face supply disruptions and can move higher than expected.
The earlier months of 2023 can put pressure on the prices.
Factors like China's reopening and economic slowdown, global recession, and weakening global manufacturing activity will keep pressing the red metal.
Covid-19 shutdowns in an already weakening Chinese economy have continued to impair the red metal's demand, with the country's real estate sector being a major risk for the copper markets.
For over two decades, China's property sector boom and urban growth have been the primary drivers of copper consumption growth, accounting for nearly a quarter of total demand in the country.
The country's GDP increased 3.9% in the third quarter of 2022, above the average projection of 3.3% YoY and 0.4% YoY in the second quarter, although real estate fell 4.2% YoY.
The government launched a flurry of initiatives to aid homebuyers and property developers and alleviate an industry-wide liquidity crisis that had been delaying the construction of several housing projects.
Despite this effort, real estate investment in 2022 was 10% less than in 2021, the first drop since data became available in 1999, and property sales fell the most since 1992.
Since China’s export figures tumbled for December, 2022, the fear of recession has thickened a bit. Hence, the global demand for commodities may also slowdown in 2023. The global demand for the Chinese goods has yet to recover some ground. Without it, the outlook will largely remain uncertain and prone to the downside.
China's real estate growth rate in 2022
The underlying factor for China’s real estate that is widely popular for discussion is Evergrande. Any significant development regarding Evergrande will move the metals market. Recently, the Chinese government has reiterated the need to support the real estate market by facilitating the key stakeholders. The authorities are concerned to ease the process for both home buyers and real estate developers. Hui Kan, the founder of Evergrande held a meeting and reinforced the project sales team to gear up with an anticipation of market recovery in 2023.
However, expectations have lately increased that government stimulus initiatives will boost demand for the red metal after attempts to strengthen the country's property industry and relax COVID restrictions.
The recent easing of quarantine restrictions is a step in the right direction, but the market will require additional flexibility if this optimism continues. China recently enacted 16 property measures to assist the struggling property industry.
Some of these solutions include debt extensions for the business and lowering deposit requirements for homeowners. These might potentially increase the use of industrial metals like Copper. Building and civil construction account for around 23% of China's copper use.
On the supply side, instabilities in South America remain a concern for Copper. Chile's state-owned Codelco, the world's largest copper producer, produced 172,000 tons less Copper in 2022. In 2022, Codelco was expected to produce 1.446 million tons of Copper, up from 1.618 million tons in 2021.
Antofagasta, another Chilean company, revealed that its（source）copper output for the whole year was 646,200 tons, which was within forecast but 10.4% lower than the previous year. This was due to poor ore grades, labor issues, and water shortages.
Protests in important mining locations in Peru continue to put pressure on copper output. Protests are not new in Peru. Its rise as a major mineral producer has worsened previously strained relations with impoverished rural people.
Tensions have spread throughout the south, including Espinar, Arequipa, and Cusco. Due to blockade-related supply issues, the Las Bambas complex's Chinese-owned operator MMG Ltd. is mining at a reduced rate. Even though it continues to process ore on-site, Las Bambas only works at 20% of its full capacity. Many experts expect Peruvian copper production to rise this year when a new mine begins operations; however, much relies on how long the current wave of protests lasts.
Global copper production
According to CRU, the copper market will likely change from a nearly 200,000-ton deficit to a surplus over the next three years as extra mine supply is expected to enter the market. According to CRU Group's Robert Edwards, Chinese refined copper consumption will increase by 1.9%in 2023. This figure jumps to 2.4% for the remainder of the world.
According to the research group, the largest problem for copper supply next year would be the production challenges seen in Chile and Peru this year.
The two countries are expected to contribute 80% to global mine growth in 2023. In terms of projects to watch in 2023, Edwards mentioned Quebrada Blanca Phase 2, Oyu Tolgoi's underground phase, the Carrapateena block cave, Udokan, and two Codelco projects.
The copper market has gained some clarity due to the LME's decision to take no action on Russian metal supplies into LME (London Metal Exchange) storage after receiving several replies to its discussion paper. The LME was considering banning Russian metal deliveries into its warehouses, reducing Russian supplies, or not taking any action.
Russian Copper is not formally sanctioned, but an increase in the sanctioning of Russian metals can be in the coming year. The danger is that more Russian metal will be transported into LME warehouses, which might imply that LME prices will trade at a discount to real market prices.
In the case of Copper, supply will be critical in the green energy transition, with the red metal predicted to be in short supply by the end of the decade if present output rates are maintained.
On the other hand, there is the possibility of increased dedication to recycling initiatives in developed economies, even if it would result in increased economic isolation.
In the long run, many experts expect copper demand to improve as the transition to renewables and electric cars accelerates (EVs). Copper is a critical component in EVs since it is utilized in the electric motor, batteries, wiring, and charging stations.
Copper's usage in EVs, wind, and solar energy has no replacements, and its attraction to investors as a vital green commodity will sustain higher prices in the coming years.
Copper consumption is expected to double to 50 million metric tons by 2035, according to S&P Global analysts. This anticipated demand surge has converted red metal into a hot investment topic. According to SEB Commodities analysts, copper prices might reach $11,000 per ton by 2024, up from roughly $8,400 per ton.
Copper's historical positive association with inflation makes it an appealing inflation hedge. The Consumer Price Index climbed by 8.3% year on year in April 2022, the largest rate since January 1982.
Copper has had the strongest correlation with the 10-year inflation rate since 2001. The high correlation can continue in 2023 if inflation persists.
Copper correlation with inflation
Opening new copper mines is becoming increasingly difficult as environmental restrictions become more restrictive. As a result, the stocks of the largest, most recognized copper mining firms are getting recognition from investors.
For example, BHP, the world's largest mining firm, reported earnings of $16.9 billion in 2022. With such a market presence, BHP is well placed to gain from any rises in copper prices in 2023.
BHP stock price
AUD is positively correlated to copper, and in 2022, the price of AUD/USD and the copper futures moved in tandem. RBA’s (Reserve Bank of Australia) decision to raise interest rates in 2023 can affect the prices of copper.
Copper's monthly chart demonstrates positive momentum. Traders may consider entering long positions if the price remains above 4.3030. If the price breaks through this level, it can hit 4.5615. If the price breaks over this resistance, it will rise to 4.8480.
With the current pattern, traders should be on the look for potential overbought levels that might lead to minor declines in the short term. The red metal's initial support level is at 3.8465. The price may fall to 3.4775 if the break below happens.
In the short term, technical indicators support this analysis' bullish conclusion. Traders must keep an eye out for extremely bullish moves that might lead to a little bearish correction.
The key factors driving the red metal down this year will largely stay in place. These factors include:
China's economic and COVID policies
Global economic crises
Protests in Peru
Many financial institutions weigh in on the Copper yearly forecast. Here we'll look at what experts and analysts say about the red metal's 2023 price prediction.
On the demand side, experts anticipate a revival in mainland Chinese copper demand, which will drive up prices with a sinking dollar. On the supply side, it is anticipated that operational challenges in Latin America will remain, with only minor improvements in output in 2023. Fitch Solutions speculate a 2% growth in worldwide primary copper demand in 2023, comparable to 2022. Mining supply will increase by around 4% in 2023, while interruptions may have an impact.
Fitch Solutions said it was increasing its copper price prediction to $8,500 a ton from $8,400 earlier as demand moves higher against a substantially weaker supply outlook.
Goldman raised its 12-month projection to $11,000/t from $9,000/t in December 2022 and its average price forecast to $9,750/t in 2023 and $12,000/t in 2024.
Given the perfect combination of conditions, BOA's commodities strategists estimate Copper might reach $12,000/t in the second quarter of 2023. Such a scenario would need a US Federal Reserve to turn toward less aggressive monetary policy tightening, limiting the upside in the US currency, and maintaining demand while the planned energy transition progresses.
The Copper took gains on TDS’s tactical short, but global macro headwinds continue to develop. The constant pressure from falling commodities demand has made it difficult for a bear market rebound to gain traction, instead leading to temporary consolidation.
After all, the world is already overstocked, and metals supply risk no longer protects against a rapidly weakening growth outlook as central banks battle inflation and the lag impact of Chinese deleveraging continues to restrict GDP. TDS is still looking to re-engage during the downturn in Copper.
Wallet Investor is optimistic about the long-term market forecast, anticipating that the price will climb in future years. The website's copper price forecast for 2023 predicted a price of $4.371 at the end of the year, while its copper price forecast for 2025 predicted a price of $5.274.
Wallet Investor forecast
Fears of a global recession, China's economic issues and the COVID crisis, and overall supply will continue to influence Copper's short-term price outlook; nevertheless, experts believe that tightening supply will keep the red metal's price support above $7,500/t until the end of 2023.
Many economists anticipate copper prices will continue to fall unless the global economic picture changes. Tight supply will become the market's primary emphasis, supporting prices in the fourth quarter of 2023.
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