Fitch Solutions expects copper prices to steadily rise in the coming years, while long-term prices could reach $US11,500 per tonne.
The financial services company has revised up its 2023 price forecast from $US8400 per tonne to $US8500 amid higher demand and weaker supply.
Fitch said prices will be buoyed by a weakening US dollar (USD) and stronger China copper demand, while operational issues in Latin America will plague supply.
“A rebound in copper demand from Chinese consumers has provided support to copper prices, attracted by lower prices and the urgent need to fulfil inventory needs in preparation for the looming demand surge expected in 2023,” Fitch said.
“We expect the easing of China’s COVID-19 restrictions and the pivot away from its strict zero-COVID policy to boost demand for industrial metals, including copper, in the coming months, especially as numerous stimulus measures are adopted to support the domestic construction sector.”
Weaker economic activity in China was a key driver of lower copper prices in 2022, but Fitch expects the situation to improve from the second quarter of 2023 as the Chinese Government introduces new policies to revive the private and public sector.
Then there’s the weakening economic situation in the US.
“Cooling of the USD will place a floor under copper prices,” Fitch said. “Our Macro team believes the Fed is close to ending its hiking cycle, seeing just one more rate hike of 25bps (basis points) in Q123 (first quarter of 2023).
“A weaker US dollar will boost investor sentiment towards industrial metals and increase demand from emerging markets, providing additional support to price levels.”
Fitch flagged the persistence of labour strikes and community opposition to mining activities, particularly in Chile and Peru, as burdens for copper supply in 2023.
“Higher input costs also pose threats to expansions and new project developments as firms focus on cost-cutting to maintain profit margins, at a time when energy costs are high as a result of geopolitical tensions in Ukraine,” Fitch said.
High inflation is also increasing the cost of raw materials and labour required for project developments.
Fitch forecasts copper prices to continue to edge higher year by year, reaching $US9100 per tonne in 2024, $US9400 per tonne in 2025 and $US9800 per tonne in 2026. By 2031, copper prices could reach $US11,500 per tonne.
“A significant pipeline of new projects will bring additional copper to the market – particularly in Chile, Peru, Australia and Canada – while we expect a number of the key supply issues in Latin America to ease in the coming years,” Fitch said.
“From around 2026, however, these improvements in supply will be increasingly outpaced by demand growth from the global transition to a green economy.
“Our Autos team forecasts global EV (electric vehicle) sales to increase 279 per cent from 2021 to 2031, and reach 24.7 million units per year by the end of the forecast period.”