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.
