Base Metals

Copper Investing

CRU Group’s Vanessa Davidson said that stimulus from Beijing won’t stop China from posting negative copper demand for 2020.

A significant projected decline in Chinese copper demand over Q1 will be hard to make up for later in the year, according to CRU Group’s Vanessa Davidson.

Speaking at the Prospectors and Developers Association of Canada (PDAC) convention in Toronto this week, Davidson shared CRU’s analysis of the current short term challenges and longer term strengths for the base metal, as outlooks and forecasts are significantly outdated since the spread of the COVID-19 coronavirus outside of China.

Speaking of China, the picture wasn’t so pretty, said Davidson. “Our opinion at this point in time is that copper demand in the first quarter of the year is going to decline by about 22 percent on a year-on-year basis, which is a very significant decline,” she said.

She added that there was expected to be stimulus flowing from Beijing to kickstart the world’s largest economy again, with expectations that copper demand could “start” to catch up in Q2, and through the rest of 2020.

However, Davidson said that “22 percent is very significant,” and China was likely to be unable to turn the ship around completely.

“Our opinion at this point, is that China could be facing its first year of negative demand growth since 2006.”

The entire Chinese supply chain being disrupted has seen CRU downgrade the country’s copper production as well.

Looking to global supply-demand balance, Davidson said that CRU had updated its forecast for 2020 from a 53,000 metric ton deficit to a 200,000 metric ton surplus for the year due to falling demand.

“But in a market of 24 million tonnes of copper, that’s not a huge surplus. That’s more or less a balance.”

Going forward, the big story would be how badly sentiment has been hammered by the coronavirus, she said, with global growth for the copper market now forecast to be 0 percent globally.

“The outlook for 2020 from a demand perspective is not looking particularly bright.”

The forecast beyond 2020 was similarly dim as well, with CRU’s analysts downgrading global demand for the cumulative years between 2019 to 2025 by 4.5 million metric tons, with the fall concentrated in developed economies.

Over the longer-term timeframe, it was a similar story to China’s in 2019 for how the market could bounce back.

“Not only have we downgraded our consumption forecast, but we’re also not expecting demand to rebound back to those more optimistic levels we were forecasting just two years ago. Instead we expect demand to remain lower in each year up to 2025.”

Looking back on the situation through 2019, Davidson said that global copper consumption had declined by 0.3 percent that year, mainly due to the “shock slowdown in global trade and industrial activity.”

“Under normal conditions I would say that that weakness of demand could have led to quite significant oversupply in the marketplace. But coincidentally, there were an awful lot of disruptions on the mine and smelter side in the last year, and as a result, refined copper production fell similarly to demand. What happened is it left the overall market in a fairly balanced position.”

Davidson said, “(There were) not many signals from the fundamentals driving prices either up or down … (but) if you look at the price chart, you see there was a lot of volatility, and in our view, a lot of that was caused by news flow.”

That news flow, said Davidson, was the stories that everyone spent the year talking about: economic expectations, the trade war and then COVID-19.

As of early March 2020, the copper price is at US$5,667 per metric ton on the LME, having only just recently almost set a new low for the year. The metal started the year at US$6,165 and was forecast by analysts to be fairly stable for the year before ticking up through to 2025 due to a lack of investment.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.


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