Monsters of Rock: EVs could see copper prices return to growth in 2024
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Copper has been a little disappointing this year, with prices for the highly-touted energy transition metal barely moving amid economic growth concerns across the world.
There are a number of reasons for that. Supply constraints haven’t been as bad as feared while rate hikes and economic uncertainty mean only China has driven demand growth and then not to the level expected after the end of its Covid lockdowns.
“According to our CE Copper Demand Proxy, year-on-year demand growth in the world outside of China has stagnated,” Capital Economics commodities strategist Kieran Tompkins said in a note.
“By contrast, it has picked up in China, though remains disappointing given that the increase partly reflects some flattering base effects from the Shanghai lockdown last year, yet growth rates are still only on par with pre-pandemic norms.
“It suggests that, for copper demand, the reopening rebound has disappointed.”
However, there are positives emerging for believers in the metal, which is trading around US$8350/t, down from the all time highs of over US$10,700/t seen in May 2021.
For one, backwardation is on the rise and stockpiles are at low levels, suggesting a physical shortage is emerging in the red metal.
Then there is the continued expansion of the EV industry. Electric vehicles are extremely copper intensive compared to internal combustion engine cars.
“Copper demand growth should recover in early 2024. We think that, on the back of stimulus measures, constructions starts in China will eventually pick up in the first half of next year, which should bolster copper prices,” Tompkins says.
“At the same time, as global growth outside of China regains pace, that should also mean that copper demand growth in the rest of the world recovers.
“In addition, we also suspect copper demand will be boosted as copper-intensive projects, in particular green-transition-related infrastructure projects, ramp up. Accelerating electric vehicle rollouts will require more of the metal, given EVs are more copper-intensive than ICE vehicles and it is also used in recharging points.
“On that basis, demand growth is likely to be strong in Europe and China, where EV rollouts are gathering the most pace. In the latter, demand will also be boosted by spending on 5G infrastructure.
“Overall, as hopes of stimulus turn into a reality, prices should find a floor by year-end at close to $8,500 per tonne. And we think that the improved demand outlook for next year should prompt a rise in the price to $9,250 per tonne by end-2024.”
Here’s hoping, copper stonkers.
BHP (ASX:BHP) fell over 2% today amid a broader hammering for the materials sector as bad Chinese property news dominated the commodities outlook.
But it also came as Chile’s national copper mining association, Cochilco, revealed BHP’s Escondida had seen a 21.5% output drop in May to 83,900t.
Escondida, also partly owned by Rio Tinto (ASX:RIO) is the largest copper mine in the world.
BHP wasn’t the only miner to see its output drop, with Chilean production down 14% year on year in May to 408,200t.
It also wasn’t the only to suffer a hit on the market with the wider materials sector down hard, falling 1.86%.