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Will the elevated copper price remain in 2022?

OZ

Copper prices reached record highs in 2021 as the strong demand for clean energy technologies continued, with prices trading as high as $US10,747 ($14,979) per tonne in May.

Prices eased to below $US10,000 per tonne close out the year but remained well above one-year and three-year averages for the base metal.

According to data from Fitch Solutions, copper prices in 2022 are expected to be slightly higher than initial forecasts, and prices can expect to remain elevated over tight inventories.

The revised forecast finds that copper prices will be $US9200 per tonne up from $US8800 per tonne, as prices started the year from a higher level than previously expected.

High-frequency indicators show that sentiment towards copper has already weakened compared to the first half of 2021, with 6697 Bloomberg CFTC CMX net non-commercial futures positions at the time of writing compared to 53,770 in May 2021 and 75,405 in February 2021.

Fitch predicts the current tightness in global copper inventories to ease slightly in 2022, as stocks on the Shanghai Futures Exchange continue to hover near 12-year lows.

This is likely to improve starting in the first quarter of 2022, as Chinese smelters are increasing production again following cuts in the second half of 2021 due to power rationing on the back of China’s energy crisis and winter.

Supply issues in Latin America that continue to persist are keeping seaborne concentrate supply tight and preventing global copper mine output from reaching pre-COVID levels, however, this should ease in 2022.

In December 2021, Chinese miner MMG was forced to halt operations at its Las Bambas copper mine in Peru, which accounts for 2 per cent of global copper concentrate production, over prolonged community protests against the project.

Over the long term to 2030, Fitch forecast the copper market will remain in deficit as consumption continues to outpace supply, driving prices higher over the coming years.

The main driver of demand growth will be the global transition to a green economy, as global electric vehicle sales are expected to reach 15 million by 2030, up from a forecast of 3 million in 2021.

According to the Copper Alliance, plug-in hybrid electric vehicles contain approximately 60 kilograms of copper metal, and battery electric vehicles contain around 83kg.

This contrasts with conventional automobiles, which contain on average between 8kg and 22kg of copper metal.

Fitch expects the market deficit to ease over the coming decade, as rising prices start incentivising new projects to existing capacity. 

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