"Copper bulls are roaming the wilds of the London Metal Exchange again. The price for the three-month contract, which dipped below $8000 a metric ton in late 2023 as Chinese growth sagged, closed above $9,700 on Wednesday and edged up again on Thursday. And BHP, one of the world's top miners, has just unveiled its bid to buy its rival, and copper heavyweight, Anglo American.
All of this makes a certain amount of sense given hopes for a stronger Chinese recovery, the global green-tech boom and mining woes in South America. But copper still isn't quite the one-way bet it seems.
China's booming copper demand may not be quite as solid as it looks, especially given the worsening overcapacity in key copper-intensive sectors like solar power and electric vehicles. Unpredictable politics in Panama could upend the supply picture, pushing the market back into surplus. And with inventories in China unseasonably high, it might not take much of a demand disappointment to affect world prices.
To be sure, copper is benefiting from real supply-and-demand tailwinds. A long-awaited manufacturing rebound in China and America's surprising economic strength in the face of higher rates could both push demand higher. Meanwhile, production downgrades by several mining companies and the prolonged closure of one of the world's largest copper mines in Panama are weighing on supply.
Citi expects copper demand will exceed supply this year and is penciling in a deficit of 1 million metric tons over the next three years. Morgan Stanley forecasts a 700,0000-metric-ton deficit in 2024.
China, which consumes about half the world's supply, has seen copper demand rise sharply in late 2023 and early 2024: Demand has been up an average of 18% year over year over the past five months, according to Morgan Stanley.
One driver is the energy transition, which is copper-intensive and requires heavy electrical investment. China's output of EVs was up almost 30% year over year in early 2024, says the bank. And China's installed solar photovoltaic capacity rose nearly 60% in 2023, figures from data provider CEIC show.
That is helping offset weak demand from housing: Completions in the nation's struggling property segment were down over 20% year over year in the first two months of 2024.
All of that sounds like a fairly solid case for the bulls. Even so, there are still a couple of important things that could go wrong.
First, supply growth could surprise on the upside. Deutsche Bank expects copper demand to be around 3% higher than supply next year if the Cobre Panama mine fails to reopen. However, if the mine were to open early next year, the bank reckons, the market would be in a surplus of 1.8%.
Second, Chinese demand could disappoint, as it already has so many times over the past 18 months. With the Chinese real-estate market flat on its back, Chinese copper demand is more dependent than ever on electricity-sector investment, and on the output of copper-intensive machinery like EVs and air conditioners. Wood Mackenzie reckons that investment in China's electrical network accounted for a full 37% of demand last year, with appliances and machinery adding up to another 30%.
One worry is that Chinese production capacity for some key copper-intensive goods -- especially solar panels and electric vehicles -- has now grown so large that the world may struggle to absorb it.
That could mean that Chinese production growth and copper demand need to slow, too. David Oxley, head of climate economics at Capital Economics, thinks that China will produce 500 gigawatts of "excess" solar panels this year, almost four times the new solar capacity installed in the rest of the world in 2023.
Similar questions are hanging over China's domestic power sector, now the single biggest driver of its copper demand. Electricity-and-heat investment was up a staggering 36.7% year over year in the first quarter of 2024, the fastest rate of growth since 2005, according to figures from CEIC.
If that were to slow for any reason -- fiscal constraints or connection issues for the vast number of new solar panels coming online, for example -- China's copper demand would take a major hit. China's fiscal stance is poised to get a bit looser this year, but its local governments continue to struggle with heavy debts and the fallout of the property crisis.
Copper has a bright future but the road to get there probably won't be straight. As 2024 grinds on, the imbalances in China's economy and supply-side swing factors like Cobre Panama could still upset the mining cart." [1]
The same problem as with sanctions on Russia. The world is much bigger than one golden billion of people in the West. The cars and sun panels produced in China are so good, and so cheap, that the world wants them and buys them. The West is left in dust of this. The West is surprised that nothing happens as expected. You go, copper...
1. Copper Still Isn't a One-Way Bet. Mandavia, Megha. Wall Street Journal, Eastern edition; New York, N.Y.. 26 Apr 2024: B.12.
Komentarų nėra:
Rašyti komentarą