Viewpoint: Copper outlooks remain murky for 2022

: Metals
21/12/23

Market participants remain split on the direction of copper prices globally heading into 2022 as greater demand comes up against additional production.

Sources were confident that market volatility would persist into the coming year, following a spike in exchange fluctuations in 2021. The average day-on-day movement in the Comex spot month was 5.3¢/lb in 2021, wider than the prior 10 year average of 3¢/lb. The exchange climbed 29.5¢/lb during a single day in April in the steepest day-on-day change reported since at least 2010.

Banks Goldman Sachs and JP Morgan conservatively projected a bearish copper exchange market, citing the strong dollar and accelerating inflation.

The US dollar has strengthened against a basket of six major currencies since the middle of the year. The US dollar index (DXY) was at 96.9 in late November, the highest level since mid-2020. The price of copper and the dollar have an inverse correlation. As the dollar appreciates, demand tends to decline as foreign currency holders are forced to pay more for each pound of metal — the opposite is true as well.

At the same time, US inflation hit a 39-year high of 6.8pc in November on the year, according to the US Bureau of Labor Statistics.

Copper miners shared weaker outlooks, predicting that supply would outpace demand until 2024, when higher demand for electric vehicles (EV) should match the increased output.

Ivanhoe expects its Democratic Republic of the Congo-based Kamoa-Kakula concentrator capacity to double in the second quarter of 2022, while AngloAmerican anticipates its 300,000 metric tonne (t)/yr Peruvian Quellaveco mine to start next year as well.  These outlooks placed the average price in the upper $3/lb range, topping out just below $4/lb for 2022 as the market moves to a surplus next year.

To add to this, the International Copper Study Group forecast in October a 42,000t deficit for 2021 to be followed by a 328,000t surplus in 2022.

Bullish outlooks persist

Although prices could drop by 10pc in early 2022, decarbonization will drive consumption and higher prices will be needed to draw in enough copper scrap to meet longer-term demand, according to an early November outlook by CitiBank.

Some market participants held similar viewpoints.

"I see the market shaking off Covid-19 and getting back to up mode soon. I would think the $4.60-4.80/lb range is in the cards as we turn to 2022," a participant said.

Another market participant projected gradually tightening supplies over the next five years with insufficient mine projects in the works.

"We are still reeling from the effects of Covid-19-driven shortages including shutdowns, employee retention issues and new hires," a third said.

Many market participants were not willing to comment on where the market may be heading, citing plenty of uncertainty, but all agree and expect price volatility to continue if supply chain issues and Covid-19 remain a big factor in daily exchange movements.

Stocks, premiums and spreads

Reduced registered copper warehouse stockpiles may provide fundamental support to higher copper premiums and tight scrap spreads. Reduced registered copper warehouse stockpiles may provide fundamental support to higher copper premiums and tight scrap spreads, while also helping to cushion the exchange price from the backlash of the Omicron variant of Covid-19.

Spot copper cathode premiums and scrap spreads are anticipated to rise in the first half of 2022 as long as stockpiles remain low and as long as freight rates and international copper scrap spreads and demand remain strong. Current cathode premiums are at highs not seen since 2019.

The general consensus suggests that copper demand for the first quarter will remain steady, based on dealers' ability to sell so far, supporting current spreads and possibly boosting them. The current bare bright spreads are the tightest since August 2020.

Higher freight rates as a result of a lack of drivers, containers and chassis are expected to remain a thorn in the side of participants, putting pressure on premiums/spreads to kick off 2022.

By Mike Hlafka

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24/12/20

Viewpoint: Copper volatility, uncertainty ahead in 2025

Houston, 20 December (Argus) — US copper prices are expected to remain volatile in 2025 because of uncertain market conditions, including Chinese demand, electric vehicle (EV) rollouts and falling borrowing costs. Following a two-year downturn prompted by China's economic slowdown in the wake of the Covid-19 pandemic, the next active price on the Chicago Mercantile Exchange (CME) hit an all-time record high of $5.106/lb on 21 May 2024. Expectations of increased demand in China, the prospect of looming US interest rate cuts, and projected ramped-up demand for copper in EVs and the green energy sector fueled copper price gains into the mid-year. These expectations proved partly exaggerated, leading copper to fall back to an average of $4.33/lb over the second half of 2024. US copper market participants expect those same factors, albeit to varying degrees, to retain a prominent role in determining prices for 2025. Macroeconomic uncertainties Suppliers and consumers widely expect volatility to persist in the global copper trade as broader macroeconomic factors — chiefly Chinese demand and stimulus, US Federal Reserve interest rate decisions — and delayed US EV ramp-up plans pull the market in diverging directions. President-elect Donald Trump's pledge to implement import tariffs have further complicated the picture for US participants, with likely retaliatory tariffs clouding the picture even more. Trade disagreements and tariffs would not only raise costs but also curb demand as the flow of various goods is dented, market sources said. Meanwhile, US Federal Reserve policymakers on 18 December signaled they are likely to cut the target rate by only 50 basis points next year, paring back their expectations from a prior 100 basis points as inflation remains sticky. The DXY dollar index, which tracks the greenback against six major currencies, surged after the Fed announcement to its highest in two years. A strong dollar puts downward pressure on copper prices because it tends to weaken demand from holders of other currencies. Tariffs are also expected to spur inflation and may prompt the Fed to further slow the pace of rate cuts, or even hike rates, effectively lending support to the dollar, making it more expensive for holders of other currencies to buy into copper. The US Dollar index, DXY, surpassed 108.2 on 19 December, the highest since November 2022. Goldman Sachs has forecast that the greenback will remain strong in the near-term. Automakers slow EV transition Although the green energy transition — generally covering solar, wind, and EV markets for copper markets — is expected to contribute to US consumption of copper, automakers have signaled their interest in delaying EV deployments. Wind and solar markets are widely expected to remain growth sectors with US projects and installations scheduled to rise next year . Still, the picture for EVs, which could ultimately contribute to copper demand heavily, is murkier. EVs utilize copper in motor coils for engines, and the cabling for charging stations among other components, and each EV requires 183 lbs of copper, nearly four times more than equivalent internal combustion engine vehicles. Several automakers, including GM, Ford and Toyota, have either delayed EV plans or shifted more towards hybrids instead this year. Price outlooks diverge Market participants broadly expect the copper market to slide into a deficit by 2026, chiefly because of growing demand from the renewable sector but until then are split on the direction of prices. The CME next active month price through November averaged $4.24/lb in 2024, up from a $3.86/lb average for the same time period in 2023. Investment bank Goldman Sachs said copper prices will average $4.61/lb for 2025, forecasting upside risk from potential further stimulus while simultaneously seeing downside risk from likely US-China trade tensions. Other financial organizations have forecast copper to range from $3.97-4.99/lb in 2025. Citigroup forecast copper at $3.97/lb, Bank of America dropped its outlook to $4.28/lb while UBS was at $4.76-$4.99/lb. Most copper traders and analysts agree that 2025 will likely be a year of transition for the red metal market, buffeted by ongoing uncertainty. By Mike Hlafka Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: PGM demand from hydrogen sector to rise

24/12/20

Viewpoint: PGM demand from hydrogen sector to rise

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US Congress passes waterways bill

24/12/19

US Congress passes waterways bill

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Q&A: Xcelsior aims to derisk minor metals investment

24/12/19

Q&A: Xcelsior aims to derisk minor metals investment

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Minor metals have multiple end-uses, each with its different market dynamics. You must have a very deep understanding of the commodities themselves, the pricing mechanism, and the material specifications… these supply chains can be opaque. They can be very complex and fast-changing. Being able to navigate them is quite challenging for a lot of more generalist investors. It fundamentally creates a market risk component for critical metals, which can be a barrier. Additionally, many larger mining companies have traditionally avoid these markets because the assets are smaller and may not yield the expected revenue and profits compared with larger copper or iron ore mines. Which metals are on your radar? We are looking very closely at all the major commodities where Wogen has a prominent trading platform, including antimony, tungsten, vanadium, mineral sands, chrome and magnesium. We also are very interested in cobalt, but more on the recycling and processing side. 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EU HRC imports drop a quarter on safeguards, AD probe

24/12/19

EU HRC imports drop a quarter on safeguards, AD probe

London, 19 December (Argus) — EU hot-rolled coil (HRC) imports have dropped by 24pc year on year in October, as a result of the safeguards changes introduced earlier in the year and the anti-dumping (AD) probe on key suppliers launched in August. Volumes amounted to 1.16mn t. The drop was underpinned by sharp declines from Japan, Egypt, Vietnam, Taiwan and South Korea. Meanwhile, other countries stepped in to fill the supply gap, such as Turkey, Ukraine and Serbia — deemed less risky for buyers, with all ramping up their volumes year on year by 292pc, 69.5pc and 172.8pc, respectively. Turkey was the top supplier with 222,760t in October. Imports from Indonesia also notably increased, by 41.5pc on the year to 29,140t. This volume will be likely to grow over November-March, but the country is expected to no longer be exempt from the safeguard measures from April onwards, market participants said. The European Commission this week launched an early review of the tariff-rate quotas, with changes, including on the developing countries list, to be introduced from April. Import supply is likely to drop further over the rest of the year, and into the first quarter, with January the last month in which residual larger volumes from countries under investigation can be custom cleared. Sales from Japan, Egypt, Vietnam and India, all under the scope of the AD probe , have mostly stopped over the current quarter. Cold-rolled coil (CRC) imports are meanwhile on the rise, with 281,336t clearing in October, up by 33.4pc on the year and 53.5pc on the month. Taiwan was the top supplier with 64,208t, followed by Turkey and India with just over 40,000t each. The increase in Taiwanese imports, which are expected to rise further, have fuelled talks in the market of a potential AD investigation. Similarly, hot-dipped galvanised (HDG) imports rose by 60.1pc on the year to 802,688t, of which 270,226t was from Vietnam, representing a 279.1pc increase year on year. Market participants have expected a probe on Vietnamese HDG for a while, but following the safeguards review launch said that a reduction in quota volumes might hit downstream products such as HDG and CRC in particular. Plate imports have also nudged up, but more modestly, by 6.9pc on the year in October to 222,133t. Rebar and wire rod arrivals were up by 170.6pc and 46.5pc on the year, respectively. By Lora Stoyanova EU HRC imports t Oct-24 ±% Oct-23 Total 1,164,750 -24 Turkey 222,760 292 Japan 164,691 -38.2 Egypt 148,979 -19.7 Vietnam 144,512 -54.7 Taiwan 127,350 -54.5 Ukraine 103,003 69.5 South Korea 90,674 -45.9 Serbia 55,372 172.8 Australia 30,690 -62.4 Indonesia 29,140 41.5 — GTT Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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