Copper prices – traditionally a barometer of the global economy – are expected to soar next year

Copper – traditionally seen as a leading indicator of economic health – unsurprisingly had a tough year. But analysts expect a revival in 2023, although the global outlook remains highly uncertain.

Some of the Wall Street’s Biggest Banks in recent weeks have suggested that a combination of short-term tight supply and long-term demand related to the energy transition will push the red metal north from here.

The downward pressure in 2022 stems in part from persistent market expectations of a surplus in the metals market, driven by the expectation of sluggish demand amid slowing global growth and accelerating mining activity, Goldman Sachs strategists said in a note last week.

However, this did not materialize and Goldman stressed that the cathode market remained in “clear deficit (GS estimate 210kt vs 131kt previously), with global apparent stocks falling to 14-year low”, metals strategist Nick Snowdown said.

“Equally important, the surplus we previously expected for 2023 (169kt surplus) has also now disappeared in our latest balance sheet iteration (GSe 178kt deficit),” he added.

The metal — used across many sectors — also endured a difficult 2022 due to tighter US monetary policy, an energy crisis stemming from Russia’s war in Ukraine and China’s combination of strict Covid-19 lockdowns and a weak property market. LME copper prices peaked at over $10,600/t in March this year.

If zero-Covid China’s easing of restrictions moves further toward reopening the economy, the stock recovery is likely to play out, Goldman believes.

“If China were to return the ratio of copper stocks to consumption to pre-2020 levels, this would mean up to a 500 kt boost to physical demand,” Snowdown said.

Quarterly copper futures on the London Metal Exchange traded at $8,543 on Monday morning in Europe after November posted its strongest month since April 2021 on hopes of a pick-up in demand if China eases its zero-Covid policies.

Last week, Goldman raised its 12-month forecast to $11,000/t from $9,000/t and raised its average price forecast to $9,750/t in 2023 and $12,000/t in 2024.

Bank of America commodity strategists believe copper could rise to $12,000/t in the second quarter of 2023 given the right circumstances. Such a scenario would require directing the US Federal Reserve to a less aggressive tightening of monetary policy, limiting the rise of American dollarand demand to remain sustained as the planned energy transition accelerates.

“Regardless of macro headwinds, physical markets remain tight, highlighting the lack of spare copper units available right now,” commodities strategist Michael Widmer said in Bank of America’s 2023 metals outlook report.

Widmer also noted that global demand for copper has proved resilient, rising year-on-year since the start of the year as purchases outside of China are at record levels.

While macroeconomic headwinds are likely to continue into 2023, Widmer said the pullback should remain positive when modeled on global GDP growth.

“Taking this a step further … China’s grid spending has offset weaknesses in the broader economy: indeed, electricity infrastructure construction has fully offset weaknesses in the housing market,” Widmer said, adding that the key question going forward is whether these are one-offs or beginnings of a structural trend.

He also noted that the relationship between global copper demand and industrial production growth has been disrupted over the past year and a half.

“In our view, this confirms to some extent that green spending has already supported global copper demand and physical markets,” Widmer said.

Data compiled by Bank of America on demand growth rates from sectors associated with net-zero policies show copper consumption expanding by 4.5% annually through 2030. In contrast, potential demand growth has been 2.1% over the past two decades, Widmer noted.

Consensus more cautious

While taking a more cautious view to reflect softer market sentiment as a result of an expected global economic slowdown, strategists at Fitch Ratings last week suggested that any blow to copper would be offset by “supportive short- and medium-term demand drivers and supply’.

“We expect a moderate increase in global primary copper consumption of around 2% in 2023, similar to 2022. Supply from mines will grow by around 4% in 2023, although outages may affect this,” they said in a research note.

“A tightly balanced market and minimal global copper inventories (less than two weeks’ consumption) will support prices in 2023. Copper’s long-term outlook is supported by demand from the energy transition.”

Fitch maintains a copper spot price assumption of $8,000/t for 2023, easing to $7,500/t in 2024 and 2025.

However, other institutions maintain a more bearish view, at least in the short term. In its 2023 forecast, BNP Paribas forecast a quarterly copper price of $6,800/t in the first quarter of next year, falling to $6,465/t in the second, but recovering to $8,250/t by the end of 2024.

“We expect a decline in European manufacturing activity to add to the impact of slowing Chinese and US activity,” the French lender said.

“Rising mine supply and accelerating Chinese refined copper production are expected to push the market into a significant surplus in 2023, easing LME spread tightening and weighing on prices.”