What’s the copper outlook for 2020? Read on to learn what analysts see coming for the red metal next year.
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Copper soared at the beginning of 2019, but the metal ultimately performed worse than many analysts expected, with the US-China trade war and work disruptions listed as the culprits.
After a positive start to the year, the red metal suddenly dropped midway through the second quarter, just as the US-China trade war took a turn for the worse.
With the year at an end, the Investing News Network (INN) asked analysts in the field for their thoughts on what’s ahead for the vital base metal. Read on for their predictions.
Copper outlook 2020: Price performance review
Copper started off the year on a high note, posting gains throughout the first quarter and reaching a high of US$6,570 per metric ton on March 1. It wasn’t until about a month into Q2 that copper’s price began to take a nosedive, dropping by nearly US$200 in one day at the beginning of May.
The price drop in the second quarter coincided with US President Donald Trump’s doubling of tariffs on Chinese imports as a response to waning trade talks.
As evidenced in the price graph below, the major feature of 2019 was the significant drop in price that occurred between April and May, from which the red metal never recovered.
Chart via London Metal Exchange.
Copper’s price ultimately dropped from its 2018 closing price, decreasing by 2.3 percent from its price of US$5,964 on December 31, 2018, to US$5,822 on December 5, 2019.
Charlie Durant of CRU Group told INN that analysts, including himself, may have been too bullish regarding copper’s future at the beginning of 2019 when they offered their forecasts.
“Our London Metal Exchange (LME) three month price forecast at the start of 2019 was for an annual average of US$6,200 (January 2019 Copper Market Outlook). This was one of the more bearish views in the market. However, even we proved to be a bit too bullish; LME three month prices will average closer to US$6,000,” Durant said.
In its October report, FocusEconomics highlights the drops in manufacturing activity in the US and Germany as a contributors to copper’s lackluster price, and states that the International Copper Study Group reported that global copper output dropped during the first half of 2019.
For Karen Norton of Refinitiv, copper prices matched up with her expectations this year.
“(2019 was a) year of limited supply that was more than offset by muted demand growth, leaving the market facing another year of surplus,” Norton said via email to INN. “Otherwise … US-China trade-related news largely determined price fluctuations.
“Our predictions overall were pretty close to the mark. At the outset we expected a year of constrained supply, but contested that this would simply help to keep the anticipated market surplus in check, given expected sluggish demand growth, especially in China,” she noted. “As a result, price moves generally have been uninspiring this year.”
Stefan Ioannou of Comark Securities also pointed to the US-China trade war as a major driver of copper’s price this past year, calling the conflict “the primary culprit behind base metal pricing/sentiment weakness/volatility through 2019.”
Copper outlook 2020: Supply and demand dynamics
Across the board, analysts agree that copper’s supply growth and demand will be limited in 2020, for reasons ranging from political turmoil between the US and China to a lack of investment.
For Norton, copper’s future looks set to be about the same as 2019’s performance, given that there are no indications that any major changes will occur to the sphere.
“Supply growth looks set to remain limited, and this is now coming on top of several years of already limited growth. Chinese scrap import curbs also have a role, although rising scrap content is having a significant offsetting effect on the supply side,” she said.
“While the global economy may avert recession, demand growth also looks set to remain sluggish. This will leave the market facing another year of surplus and, while not a particularly large one, the likelihood that it will be followed by surpluses for another couple of years beyond that should be sufficient to cap attempts to break to the upside on a sustained basis,” she added.
Over at CRU Group, Durant echoed the prediction of a small surplus that will not shake the market, but said he has concerns regarding the political stability of mining countries in South America as they continue to experience protests.
“We think that the refined copper market will see a small surplus next year of about 100,000 tonnes. But in a market the size of copper, this is effectively balanced,” said Durant.
“2019 demonstrated that the copper supply chain remains fragile. CRU estimates that disruptions to global mine production were 6 percent last year compared to a historical average of just less than 5 percent, while unforeseen interruptions continued to plague the smelter and refinery sectors across the world, from Chile to China,” he added.
For Ioannou, the lack of additional projects on the docket for 2020 will hinder the red metal’s supply growth. The expert said that much of the concern regarding copper’s supply stems from the lack of large-scale advancement within the copper sphere.
“We also remain cognizant that an eventual supply response will likely entail the development of large, lower-grade mines located in areas of higher political risk and/or infrastructural hurdles, redefining the industry’s cost curve and increasing incentive metal pricing required to justify said development.”
Copper outlook 2020: Key factors to watch for
Among the analysts, the outcome of the US-China trade war will be a major factor that will influence the behavior of copper’s price for the year to come, as will disruptions at various mines.
“Looking further ahead, we expect the industry’s lack of timely new large-scale project advancement over the last 5+ years will culminate in a copper supply deficit — near-term supply growth is dominated by brownfield expansion (as opposed to new discoveries) and the industry’s inventory of available development opportunities is low,” Ioannou said.
For Durant, political unrest in top-producing countries is worrisome and a cause for concern regarding the red metal’s price.
“Near-term risks to mine supply remain high,” he said. “Country-wide civil unrest and several mine labor contract renegotiations in Chile, community protests in the Arequipa region of Peru, operating challenges in the African Copperbelt and the possibility of profit-related smelter shutdowns could all upset forecasts that otherwise suggest an increase in copper production of almost 1.5 percent in 2020.”
Norton echoed the focus on politics as a leading influence on the price of copper, pointing to the US-China trade talks’ progress — or lack thereof — as a key factor.
“It is also a year of several labor contract expiries at significant mines, giving the potential for greater disruption to supply,” she added.
FocusEconomics’ panel of analysts wrote in their October report that in the short term, “Copper prices are likely to remain below the US$6,000 mark, as slowing global momentum and trade war uncertainties weigh on sentiment.
“The medium-term outlook is bright, however, as refined production lags behind usage, amid limited production capacity and increasing demand for copper in new technologies such as electric vehicles and green-energy projects,” the report adds.
With regards to companies to watch, Ioannou listed Trilogy Metals (TSX:TMQ,NYSEAMERICAN:TMQ), an exploration company with projects in Northwest Alaska, as one of his top companies to look out for.
“It may be a time for such companies to start to position themselves for the deficits that are forecast from around 2023 by making some astute acquisitions, avoiding becoming prey themselves,” she said.
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Securities Disclosure: I, Sasha Dhesi, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.