The last thing Copper wants to see is the problems facing Chinese real estate company Evergrande Group. The group’s chairman, Xu Jiayin, has been detained on suspicion of committing a crime, raising suspicions that the company will be difficult to recover.
Copper prices have fallen to four-month lows and are expected to hold above $10,000 per ton in early 2023, but are currently struggling to hold on to levels around $8,000.
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Over the weekend, three-month futures for the red metal on the London Metal Exchange (LME) settled at $8,270.50 a tonne, while spot quotes were at $8,230 a tonne. Analysts said copper prices were capped by continued pressure from a stronger U.S. dollar and a weak global economy.
Risks still exist
ING Think, the financial and economic analysis arm of Dutch multinational financial services company ING, said China’s recovery remains uncertain and anything related to real estate continues to be in trouble. “For copper, copper still faces downside risks heading into the end of the year due to the uncertain outlook for China’s real estate industry. We believe commodity-intensive stimulus measures are needed to support short- and medium-term demand growth.”
“Despite a brief rebound in industrial growth and new loans in top consumer China, fresh worries about the financial health of property developers still raise concerns that China’s unstable macroeconomic backdrop has not yet bottomed out,” the agency said. trade economics website.
BMI, the research arm of Fitch Solutions, said: “The year-to-date average price as of September 19 was US$8,628/ton, lower than the average price for all of 2022 of US$8,788/ton.”
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“Copper inventories held on the London Metal Exchange have more than doubled in two months. This shows a clear signal of weak demand,” ING Think said.
Increase inventory by 50%
LME red metal stocks stand at 1,62,900 tons. ING Think said inventories rose by more than 50% in September, following a similar increase in August. However, the company maintained its average price forecast for 2023 at US$8,582/ton.
“We lower our 2023 average copper price forecast to $8,550/ton from the previous $8,800/ton as a stronger U.S. dollar and concerns about another Fed rate hike limit price growth,” BMI said.
The report said a recovery led by China’s services sector and weak global demand, as well as investor confidence in industrial metals including copper, continued to weigh on prices.
Trading Economics said the Fed’s hawkish outlook and concerns about Europe were affecting industrial activity “as evidenced by months of contracting manufacturing PMIs”.
Slow recovery
BMI said it believes demand will remain weak in the short term, given China. “The economic recovery remained uneven in August, and China’s manufacturing PMI remained in contraction despite rising slightly from 49.3 in July to 49.7 in August 2023,” the research agency said.
On the other hand, although the PMI dropped slightly to 51 in August from 51.5 in July, indicating a slower month-on-month recovery, China’s non-manufacturing industry continued to expand. “A contraction in commodity-intensive manufacturing would be detrimental to both demand and prices for industrial metals, including copper,” BMI said.
ING Think said there were signs that the supply of available materials would be sufficient. The company said: “The discount for the near-term delivery contract relative to the three-month contract continues to increase, indicating that more deliveries may be coming.” The discount is the largest in 29 years.
“Copper prices are likely to weaken further as LME inventories and discounts build,” it said.
oversupply
BMI forecasts a supply surplus of 236,500 tonnes in 2023 as overall global copper demand is expected to slow. China’s copper production is expected to increase by 7% year-on-year in 2023, reaching 11.6 million tons.
The research house said that although housing prices are expected to improve slightly from current levels in 2023, they are not expected to return to the highs of 2022 as China’s real estate industry remains in a downturn.
“In the longer term, we expect continued shortages in the copper market as the green transition accelerates and demand for ‘green’ metals, including copper,” it said.
Market participants say huge copper shortages are on the horizon and current production levels cannot keep up with growing electrification demand. Production at Chilean state-owned Codelco fell 14% in the first half of this year, continuing a 7% decline in 2022. trade economics explain.
BMI said that in the long term, the copper market is expected to continue to be in deficit as the green transition accelerates and demand for “green” metals including copper. “With the dollar weakening and demand outpacing supply, we expect prices to average $8,800 in 2024, above the 2023 average,” the research house said.
