Copper Prices

Copper price forecasts

Factors that affect copper prices include the following:

1. copper cathode inventory levels, especially in China, which has larger swings in electronics industry production levels, housing starts, infrastructure funding, and other industries. 
2. crap levels, again especially in China, which currently represents 48% of the world’s copper consumption.
3. industrial production and housing starts in the world’s large economies, including the US, major countries of W. Europe, China, and India.
4. mine supply, which can be affected by labour actions, natural disasters, government policies and other disruptions, as well as by mining-company decisions based on current or near-term copper prices relative to copper-production costs.  
5. currency exchange rates, especially the Chinese RMB and the Euro vs. the US dollar; 
6. the positions taken by commodity traders, which can be affected by market dynamics, trading trends in other commodities, perceptions of inflation or deflation, and currency values.

 

Cyclicality in supply-demand balance

In past years, the copper industry’s balance of supply and demand has shown some cyclical behaviour, with prices running up during periods of strong demand and tighter supply. The economic growth in China and the country’s copper demand was a key factor in the prolonged cycle of high prices from 2011 to 2015. Softening of China’s demand in 2015 and the build-up of stocks contributed to the 2015 price declines.

 

Reasons for the 2015-2016 price drop

The price erosion in H2 2015 and early 2016 resulted from excess supply, weak demand in China and elsewhere, a strong dollar, cost deflation, and sell-off of commodity-investment funds. The weak commodity trading affected a broad range of metals, oil, coal, and other commodities, not just copper.

 

The weaker demand and excess supply of copper was expected to persist through 2016, keeping prices low.

 

Prices recovered sooner than expected

For most of 2016, copper prices ranged from US$4,500 to US$5,000 per tonne. In November 2016, the LME price jumped to US$5,920. Prices remained strong in early 2017, topping US$6,000 in February, and averaging US$5,907 in March.  

 

The jump in November is attributed to stronger-than-expected growth in China’s demand in H2 2016. Also, commodity traders began taking a more long-term perspective, driving copper trading prices to a new range.  

 

Supply side was stable in 2016 

Mine output remained stable through most of 2016 and is not expected to increase in 2017. Despite some disruptions at large mines late in 2016, the year on the whole experienced fewer disruptions than any year in the previous decade. The low prices in early 2016 spurred miners to cut costs and pursue efficiency, but it did not cause significant mine closures.   

 

So the main reasons for the Q4 2016 and Q1 2017 price recovery are stronger demand, especially in China, and the shift of speculative money from short positions to long positions in commodity trading.

 

Factors in the near-term forecast

The market situation in 2016 delayed or reduced investments from some mining companies. The lower investments could be a factor in lower excess supply in the coming years. With this correction in the supply imbalance, prices will stabilize and head back up. But the investor confidence and the price jump experienced in November of 2016 are not expected to be a recurring trend in 2017.  

 

The price forecast for 2017 and 2018 reflects a mix of positive and negative factors. One factor that could serve to keep prices high is the unusual situation in which the world’s three largest copper mines are experiencing disruptions at the same time. These disruptions have lasted for most of Q1 2017.

 

Another factor exerting upward pressure on prices is the outlook for stronger economic growth and industrial production in China during 2017.  

 

Factors that may contribute to downward pressure on prices include the increased availability of scrap, which has been observed in early 2017. This could affect prices through much of the year. In China and Europe, most scrap is processed into wire-rod, as opposed to sheets, strips, bars, tubes, or other semi-finished copper products. Also, cathode stocks are at high levels.

 

Copper prices in 2017 and beyond

Monthly average prices are expected to remain in a range of US$5,500 to US$6,000 per tonne for 2017, with the year-long average close to US$6,000. Prices will move upward in 2018, averaging US$6,300 per tonne for the year, and then shifting to levels above US$7,000 per tonne by 2020.