Copper seemed doomed not so long ago, at the beginning and middle of the year there was a huge deficit of 370,000 tonnes, according to projections then made by the International Copper Association (ICA). The uses of copper place it at the epicenter of various revolutions that They would generate a “boom” on the demand side. This metal is used for electrical cables, motors, generators and components. This places it at the epicenter of the largest production of electric cars, led by China and semiconductors. This, added to the difficulties encountered in its supply, led all analysts to assume that the metal was doomed to permanent rises.
For May this year commodity prices had soared on the 27th% and there was little reason to expect change. However, since then metal prices have fallen by 19% and there is only a positive balance in 2024 of 3%, which could fade as the days go by, since the trend is downward.
The reasons are multiple, but the most fundamental is that China has embarked on a veritable production fever, the likes of which few people remember. A possibility that seemed very complicated until not so long ago. The Asian giant has already increased its production by 5% this year. In 2023 China produced 1.7 million tonnes. China is the third world power behind Chile and Peru and is responsible for 8.6% of global production. Therefore, an increase in this level represents a paradigm shift for the market as a whole, especially since China is the world’s largest consumer. But the problem, more than what has already worsened, are the projections of a massive expansion in the coming months and in 2025.
This, coupled with falling general demand, will be the key to a completely unexpected surplus in 2024. Globally, the Copper Council expects the increase in copper orders refined copper by 2023 represents only 2.2%, up to 26.14 million tons. Even if hunger in factories does not meet what was taken for granted, the situation has also changed on the supply side. The supply will reach 26.71 million tonnes. In other words, there would be a surplus given that growth would be 3.2%.
The situation has taken such a turn that even within the country, there are calls to reduce factory projects to avoid enormous losses in foundries. According to CRU Group estimates, the price of metal refining could fall to $40 per ton compared to 80 dollars on average at which it was listed in 2023. In this sense, it would remain at the limit of the historic lows of 2004. The association of employers in the Chinese metallurgical sector assured that “Beijing should intervene to prevent blind expansion which generates excess capacity”.
If on the supply side a tsunami of Chinese copper could flood the market, on the supply side there has also been a significant shock, both from China and the rest of the world. Currently, China only grew 4.6% in the third quarter. below its target of 5% and therefore lower than what the markets expected. The country’s authorities themselves believed that they might face a phase of increasingly slow growth and a situation of near deflation. A prospect which led Beijing to announce a historic recovery plan. These measures initially raised hopes for a recovery in the Asian (and global) economy, but as more details become known, doubts are mounting.
We knew for the first time a 260 billion plan for real estate and consumption and, subsequently, another to eliminate the debt of their indebted local governments. These measures have not completely convinced, even if China itself made it clear that in the absence of more ambitious and concrete measures, it has “considerable margin” to increase its debt and embark on new ambitions. However, for now, this optimism has not boosted copper.
This comes in particular from the Chinese construction sector, which is the largest consumer of copper in the world and which only forecasts growth of 4% this year after the sharp declines in recent years. In this sense, public sector research firm Antaike said in September that it expected, given these forecasts, a rise in demand for copper across China. slows to 2.4% compared to 5.3% last year mainly for this sector.
“The latest stimulus is refinancing local government debt, so that’s not going to boost physical demand much”
Similar estimates are provided by the Copper Council, which in its October report says it expects demand from China of 14.603 million tonnes.slowing its growth to 2.6%. By 2025, they expect the slowdown to deepen and remain at 1.6%.
This idea that Chinese stimuli will not save copper, as one might have thought during the first announcement, has already been commented on by the country’s main importer. “The latest stimulus measure consists of refinancing the debts of local authorities“So it’s not going to boost physical demand much,” said Ni Hongyan, deputy general manager of Eagle Metal International, which handles 10% of all imports from China.
“The Chinese stimulus measures were not exactly what people expected and I still think it is difficult for the government to come up with a plan that be really bullish on base metals” said the head of metals research at Bank of America, Michael Widmer. The last to speak on the subject was Citigroup in a report published this Wednesday and in which it reduced its short-term outlook by 9 $500 to $8,500 The company said that, “China’s lack of flexibility so far has surprised us.”
The Trump factor
This new balance has been mixed in recent weeks with the election of Donald Trump. The prices will weigh in global industrial activity, weighing on demand and, moreover, the prospect of this type of measures gives new life to the dollar. The raw material being denominated in this currency, the currency effect is therefore determining.
“Our view is that Trump’s policies – particularly higher tariffs and procyclical fiscal policy – will lead to a substantial appreciation of the dollar“, said Jonas Goltermann, deputy chief markets economist at Capital Economics. This is why Citi analysts comment that “these (policy and currency) changes generate additional pressure on copper demand by inflating costs and, potentially, reducing manufacturing output.
BHP estimates that copper demand will eventually increase by 72% sooner or later
In this sense, Nicholas Snowdon, head of metals research at Mercuria Energy Trading, said that “the reality is that we are probably in the process of finding a new range taking into account a readjustment of prices in dollars. » The expert believes, however, that “the structural story of copper is not dead, it is still very much alive and we believe that the dynamics will prevail in the second half of next year”.
At this time and with the Trump factor calmed, the expert hopes that it will be remembered why the world thought about an aggressive awakening of copper, a demand whose inertia is towards the increase. One of the largest companies in the sector, BHP, defended on the eve of the elections that there would be some weakness before “strong increases”. The mining company estimates that by 2050 ““Demand for copper will skyrocket by 72%”.
Sooner or later, the arrival of electric cars, data centers and renewable energies, all dependent on copper, will eventually unlock the potential of the raw material. It remains to be seen how quickly this process will unfold. and especially if the world can find an alternative supply. What is clear at the moment is that, in the short and medium term, the “battle” for copper appears to be resolved, prices will be able to breathe and the threat of a big rebound will be averted.
