Surging copper could test record highs- Goldman Sachs

Mining News Article

2nd December 2020

Kirsty Batten

Copper has soared in recent weeks amid falling stockpiles, strong demand, and hopes of a faster economic recovery from the COVID-19 pandemic.

According to the International Copper Study Group, global copper mine production for the first eight months of the year fell by 0.8%, refined production increased by 1.2% and apparent refined usage increased by 1%.

Based on the data, the ICSG estimates an apparent deficit of 293,000 tonnes for the eight months to August 31.

Copper rose towards an eight-year high overnight after gaining a further 1.6% to $7688/t.

It is now up 66.2% from its March low.

Goldman Sachs said the bull market was fully underway.

“This current price strength is not an irrational aberration, rather we view it as the first leg of a structural bull market in copper,” the bank said overnight.

Goldman Sachs believes 2021 will bring the tightest copper market in a decade, with a deficit of 327,000t, followed by a 153,000t deficit in 2022 and 35,000t surplus in 2023.

“This period will be framed by a robust cyclical and policy driven demand environment set against already low inventories, a fast-approaching peak of base case mine supply and a falling dollar,” analysts said.

“We believe a significantly higher copper price is needed to help balance this structurally tight fundamental backdrop.”

The bank lifted its 12-month copper price target from $7500/t to $9500/t.

It is expecting copper to average $8625/t next year and $9175/t in 2022.

“We believe it is highly probable that by 1H2022, copper will test the existing record highs set in 2011 ($10,170/t),” Goldman Sachs said.

“Higher prices should ultimately help defer peak supply and ease market tightness, but this first requires a sustained rally through 2021/22.”

US bank Jefferies hasn’t ruled out an even higher price, saying last month wouldn’t be unreasonable to assume the copper price would rise to at least $5 per pound ($11,020/t).

“The copper market is heading into a multi-year period of deficits,” it said last week.

Jefferies says the market is yet to factor in demand from the forecast ‘green wave’,  which it expects to result in demand from renewable energy to rise from 991,000t this year to 6.4Mt by 2030 under its bull case.