The copper price surged in the final months of 2016, and in Q1 2017 it saw a modest uptick. During the period, supply concerns, as well uncertainty about Trump’s presidency, were the metal’s main price drivers.
But what’s in store for copper in Q2 2017 and beyond? By and large experts seem to be fairly upbeat about the red metal’s prospects moving forward. Most agree that further supply disruptions could be coming, and are optimistic that demand will not flag. Encouragingly, the copper price itself is expected to stay flat or rise.
Read on for a more detailed overview of the main factors that impacted the copper market in the first quarter of 2017, and a brief look at what investors should watch out for in the next few months.
Copper price update: Q1 price overview
As mentioned, the copper price began trending upward in the second half of 2016. It has also risen in 2017, but not as strongly as some market watchers had hoped.
The red metal is up only 4 percent this year, as is outlined in the chart below from Kitco. It reached its highest point since May 2015 in February, when it traded at $6,204 per tonne. That copper price spike was supported by supply concerns caused by stoppages at major mines.
Copper’s lowest price this year came in January — during the quiet holiday period it clocked in at $5,000. Another low point this quarter was in March, before the US Federal Reserve announced an interest rate hike. At that time the metal hit a two-month low of $5,652.
Most recently, the copper price has been trading at around $5,760. Last week it took a fall after US President Donald Trump failed to push through healthcare reforms. The news fueled concerns about his ability to implement his economic policies.
“We have already started to see short-term downward corrections in copper, in line with this increased market uncertainty toward the new administration’s pro-growth policies,” Mu Li, director of base and specialty metals research at CPM Group, said via email.
“Copper prices will likely move in a choppy fashion due to mixed sentiment,” she added.
According to panelists at FocusEconomics, the average copper price forecast for Q2 2017 is $5,626. The most bearish forecast for the quarter comes from BBVA Research, which is calling for a price of $4,584; meanwhile, Standard Chartered (LSE:STAN) is the most bullish with a forecast of $6,117.
Copper price update: Supply and demand
In the first three months of 2017, all eyes were on copper mine disruption news. Chile’s Escondida, the world’s largest copper mine, faced a 43-day strike, the longest stoppage in its history, due to labor negotiations between union workers and BHP Billiton (NYSE:BHP,LSE:BLT,ASX:BHP) management.
In addition, Freeport-McMoRan’s (NYSE:FCX) Indonesia-based Grasberg mine, the second-largest copper mine in the world, stopped production for over a month due to a smelter strike and issues surrounding the renewal of the company’s mining permit.
These supply disruptions are estimated to have brought global 2017 copper output down by 5 to 7 percent. Normally such a reduction in supply would spark a price rise; however, stockpiled metal and low demand have kept the news from pushing the copper price up further.
Inventories of copper in exchange-monitored warehouses have risen more than 40 percent this year, and earlier this month hit their highest levels since 2013. Although tonnage tends to rise before Chinese demand climbs towards the middle of the year, these numbers remain high.
“We are cautious about the state of demand. Stocks of refined metal are relatively high. What’s more, we think that quarter one will represent the high point of China’s growth this year,” Caroline Bain, Capital Economics’ chief commodities economist, said via email.
Li is more optimistic about Chinese copper demand. “Rolling over to recent months … there is some healthy pickup in end-use consumption coming from China’s power infrastructure and construction sectors,” she said.
“The market looks tighter than people have previously thought, and … this improvement in fundamentals is supporting prices, if not pulling prices much higher,” she added.
Copper price update: What’s ahead?
As the second quarter of the year begins, investors interested in the copper market should pay attention to a number of factors that could have a short-term impact on the metal’s price.
Most notably, market participants should closely watch upcoming labor negotiations at copper mines around the world. About 15 percent of annual copper production will be subject to wage negotiations in 2017, and deals will need to be made at many major mines, including Grasberg and Glencore’s (LSE:GLEN) Collahuasi.
“Any additional major disruptions would send the market into a considerable deficit,” Bain said.
According to CPM Group, investors should also keep an eye on the Fed, which may hike interest rates again in June. “Running up to June the market could become very nervous and some short-term volatility in copper prices can be expected,” Li said.
Additionally, copper-focused investors will want to be aware of what Trump is doing, and in particular should watch to see whether his tax reform and infrastructure spending plans move forward. As noted, some believe that his failure to pass healthcare reforms could indicate that his other plans will face difficulties.
Trump’s defeat has “put a bit of a threat under the market in terms of all his other programs,” said David Lennox, an analyst at Fat Prophets in Sydney. As a result, “[m]arkets are fretting” over the impact on base metals demand if his plans for a spending boost on infrastructure are hampered.
Bain too noted that progress on fiscal stimulus in the US (or lack thereof) “has a powerful influence on investor sentiment.” That said, she does not believe it will make a significant difference for copper demand this year.
Lastly, investors should be aware of economic data from China, the world’s largest consumer of the base metal. According to Capital Economics, China’s economy could slow over the course of 2017, supported by a lack of additional stimulus from its government.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.