Forecast for the LME Price of Copper

The world’s third-most-consumed metal, copper, is expected to see an increase in demand over the next several years as a result of a limited supply.

Goldman Sachs, one of the red metal’s most ardent supporters, has hailed copper as a crucial element for igniting the fuel of the renewable power transition.

Because of this, market observers have been keeping their fingers crossed to see when copper will increase in price. The prevailing assumption is that higher copper prices are necessary for mining corporations to expand their copper discovery and output.

To fulfill the new surge of copper demand, a substantial increase in supply resources will be necessary, and a higher price for copper will be ever more binding to stimulate the injection of additional copper output into the market.

An unprecedented surge in copper prices began in 2021 as a result of a widening gap between the metal’s supply and demand. Prices reached the highest level of US$10,724.50 per metric ton (MT), which then went on to be shattered in March 2022 when it exceeded US$10,730 per MT.

LME copper price, which had reached an all-time high in March, went on to decline 21% to $8,450 per metric ton in June, which is $300 below where analysts had anticipated it would be by the year 2024.

The similarly abrupt decline in open interest on the LME, as well as Shanghai Futures Exchange (SHFE), illustrates a broad flight of the market that reinforces a further negative trend for the prices of copper in the third quarter of 2022, especially when considering that as of mid-August, the price of copper had fallen to roughly US$8,000 per MT due to mounting concerns about a worldwide recession.

The major issue posed here, though, is that if there is still a reason to be sanguine about an upcoming bull market for the red metal or not.

The metal, which is sometimes regarded as a leading indicator of the status of the global economy, has fallen roughly 30% since reaching a high in March.

Due to constrained supplies and its growing role in green technology, copper has been deemed to be a profitable commodity for many analysts.

However, since Russia’s tightening energy supply has wreaked havoc on businesses worldwide, particularly in Europe, prices have plummeted.

This is the reason why the investment bank Goldman Sachs has cut its short-term price projection from US$12,000 per MT back to US$9,000 per MT.

Be that as it may, when it comes to the long-term forecast on copper prices, the bank analysts continue to prognosticate that copper will exceed US$15,000 per MT in 2025, indicating that they speculate there is a solid fundamental bullish scenario for the copper market across the globe.

In its prediction, the Bank of America is a little more cautious, predicting that the red metal market would experience surpluses in 2023 and 2024 until it retreats to deficiency by 2025.

Moreover, the bank predicted the price of copper to be US$3.97 per pound (US$8,750 per MT) in 2022 and US$3.29 per pound (US$7,250 per MT) in 2023.

By taking into account such unwavering shifts and the current pessimistic mindset toward the copper market, the major notable questions raised here are to what extent the red metal might fall in price and when exactly the signs of the bullish market would appear.

Taking into consideration the recent recurring lows or, more essentially, accounting for the mean costs and expenses of the highest four operational mines results in the same conclusion: an ultimate bottom line of copper prices appear to be close to $5,000 per metric ton.

It is not anticipated that prices will see a drop of more than $3,000 per metric ton for two grounds.

Firstly, the primary reason for the sluggish consumption progress, more specifically, decreasing demand in mainland China — will no longer exist. Rather, a rebound in Chinese demand later this year will help stabilize prices somewhat on its own.

Besides, the inventory level has remained low for the previous two months and has not shown any signs of rising. When expressed in terms of consumption weeks, April’s figure of 2.7 is much lower than a normal level of 3.8 weeks, indicating that the market is inherently constrained.

During the upcoming months, of course, the market will most likely go through an oversupply. The market is anticipated to be substantially tighter at the end of the year on the ground of the fact that the estimated volume of the copper surplus would not be that much great. This means that it is to be said that there would be just a slight inventory increase.

This does not necessarily signify that the red metal would not go down in price further; instead, such elements would keep the downward trends of the copper market utterly controlled and restricted.

After having a brief overview of LME forecast copper, let’s dive into each of the influential factors affecting the long and short-term predictions of copper price in a very broader term.

Factors driving copper’s rising price

Due to its many favorable characteristics, copper is in high demand across a wide variety of industries. Since copper’s demand has been primarily driven by the building and engineering industries, it should come as no surprise that copper is a perfect metal to be used for power storage, electric cars, and energy storage systems.

As copper has a conductivity ranking that is inferior only to silver, it will be the main benefactor of the power transitions due to its major applications in the development of solar panels, wind turbines, and electric cars.

China is the greatest user of red metal throughout the globe, and despite the fact that its zero-COVID agenda has had a disastrous effect on the country’s economy, particularly in the property market, there is still a tremendous increase in demand for copper as an electrical commodity.

The government of China has allocated US$1.4 trillion in copper-intensive investment projects, such as 5G technology, digital economy, interurban public and railing systems, ultra-high voltage power transmitting, and EVs charging infrastructure, as part of its Made in China 2025 and China Standards 2035 proposals.

Even outside of China, the EV sector is a significant current and prospective worldwide driver of the copper demand, particularly when considering that in comparison to a conventional car with an internal combustion engine, EVs require more than three and a half times the amount of copper.

Moreover, the power storage sector has turned out to be one of the main drivers of copper markets in recent decades to the point that it is calculated that lithium-ion batteries require 1.1 to 1.2 kilograms of copper to properly perform in each kilowatt hour.

As per some estimations, by 2027, around 600,000 MT of extra copper is required to satisfy such soaring demands.

Specifically, with the current electrified era, the amount of copper that is necessary for the coming twenty years would exceed what was needed in the previous 130 years.

This is while the demand for copper is not the only influential element that has led the red metal to go up high in price.

For more than ten years, the biggest copper mines in the world have been forced to cope with the challenges of the gradual decrease of copper grades as well as the absence of newly discovered copper resources.

According to the report of S&P Global Market Intelligence in June 2020, the copper mine sources were depicted to be very “dismal.” It was also revealed that among 224 copper deposits found between the years 1990 and 2019, just 16 of them were found in the recent decade.

Over and above that, the pandemic-related issues have indeed aggravated the problems of the worldwide supply chains of copper as the extraction of copper mines and the processing of copper products in most of the major producing nations were either suspended or canceled as a whole.

The financial turmoil even urged miners to postpone their capitalizations in copper mines and production. This issue becomes even more complex when considering that the expansion of a new copper deposit would take long around two decades.

Even worse than that, two of the biggest copper producers in the world, Chile and Peru, whose collective copper outputs were announced to be 40% of the world’s copper production, are facing some serious supply conundrums.

A number of the greatest copper miners in the world from Chile, most notably BHP and Anglo-American, are encountering increased royalty ratios through a reformed tax bill.

Furthermore, they are suffering from water shortages with a severe drought, imposing more pressure on water accessibility in those mining and processing copper production methods that require water to pump the red metal to the outer layer of the earth, along with their smelting and concentration procedures.

Besides, even the president of Peru, Pedro Castillo, has increased tensions in the copper mining industry as he has made some decisions that would most likely increase mining royalties, aside from the region’s own continuous social and political chaos that has been emerged through some mining disruptions as a result of the locals protests.

In other words, there is a shortage of expansion projects on the supply side of the red metal amid the ever more increasing demand for this precious metal. It is estimated that the copper market is set to undergo a fundamental deficiency by the 2030s if there is no further capitalization in the copper mining industry.

Therefore, the considerable demand and constrained supply would incentive the market toward higher copper prices.

Long-term forecast of copper prices

Yet, as long as the prediction of the copper market is concerned, it must have borne in mind that because the prices of the precious industrial metals are very fluctuating, it is a herculean task to precisely forecast their prices through a specific time in the near or long future. So all the predictions indicated in any source are indeed subject to further revision at any time that a new driving factor emerges.

Be that as it may, it is pertinent to consider the world bank copper price forecast as they have predicted that copper would be traded at US$9,700 and US$9,000, respectively, in 2023 and 2024.

In the longer term, the copper price prediction for 2025 of Goldman Sachs has still been optimistic for investors, as the prices would increase to $15,000 per ton.

Short-term forecast of copper prices

Considering the main drivers of copper prices in 2022, here there is an analysis of what is supposed to happen in the copper market for the remaining months of the current year and a glimpse into the short-term forecast of copper prices.

At the end of February 2022, amid the rising crisis between Russia and Ukraine, prices for copper, aluminum, tin, and zinc all climbed to all-time highs in March due to increased demand and a shortage of their supply.

According to the COMEX copper price chart, the red metal’s price increased by 130 percent over the course of the period that started in March 2020 with the commencement of the Covid-19 shutdowns and reached an all-time high so as to be traded at $5 per pound in March 2022.

Nevertheless, after that, the prices exceeded US$10,500 per metric ton (MT), and they went on to fall abruptly in the 2nd quarter, losing over US$2,000 by the end of the three months.

As can be seen in the figure below, the LME Index saw a negative trend throughout the 2nd quarter of 2022, recording its worst quarterly decline ever since the worldwide financial crisis of 2008.

Figure 1: The London Metal Exchange’s (LME) chart of copper’s price development in the second quarter of 2022.

The factors behind such downward trends of copper prices in Q2 and Q3, which have made the market utterly volatile, proved to be a significant decrease in copper demand as a result of the conflicting macroeconomic elements, notably the ongoing property crisis in China and the recurring Covid-19 shutdowns.

Due to the weakened real estate and construction industries in China and the country’s expanding mine supplies, their H2 2023 output will be greater than H1, driving up operating costs for manufacturers in China and causing production to outpace demand.

But the copper prices are being impacted by some other significant near-term threats, though, even outside of China.

The cost of manufacturing is anticipated to increase as a result of soaring input prices (oil, gas, and coal). This will urge producers to either increase prices or reduce output, reducing the demand for copper.

Wire harnesses for European automobile manufacturers are mostly supplied by Ukraine. A number of automobile supply chains have been hampered by the suspension of Ukrainian companies.

The US Federal Reserve (Fed) and other central banks have aggressively raised interest rates to combat 40-year-high inflation, which has made markets more worried that a rough crash for the world economy may be imminent.

A more than anticipated effect on the GDP might result from rapid interest rate increases, which would affect copper consumption.

Concerns about a possible recession in the West are growing as a result of high energy costs and increasing rates of interest.

While the spike in the dollar has put considerable distress on the copper market, the worldwide energy constraint is also aggravating the status of the economy and would most likely intensify the pressures through winter.

To the extent that copper failed to have the backup of one of its most strong supporters when Goldman Sachs Investing Group cut its short-term price projections in expectation of a dramatic decline in public consumption and industrial operations as Europe’s energy conflict intensifies.

One of the most optimistic groups of experts on commodities has been that of the Goldman team, who have cautioned that the market for copper particularly may turn into one of the most constrained ever.

Goldman is alerting that the downturn may still have a long way to go since investors are selling the red metal in record numbers and because prices are 40 percent below what they had anticipated.

Investors may be speculating about downward price trends as the 2nd quarter of the year continues to proceed.

It is hardly surprising, given the current price of copper, that many analysts predict further price declines in the near future; however, the decline in the third quarter has been more rapid than expected.

Whatever the case, observers are still somewhat hopeful about the upcoming years despite reduced Chinese demand.

Although the Chinese government’s authority to loosen the macroeconomic stimulus is constrained, fiscal policy is being implemented via funding and tax reductions, and the construction industry would be the first one to take advantage.

It is anticipated that a significant increase in Chinese copper consumption would be stimulated as the year progresses, boosted by government fiscal programs while the country’s economy bounces back from pandemic shutdowns.

Even though the negative sentiment around the nation’s property market is still a concern, it should be mitigated in the next few months by the projected rebound in China, the largest consumer of copper across the globe.

At the same time, inflation continues to be a major issue, and the problems posed by Russia will make it difficult for the European industrial sector to deal with energy shortfalls.

However, any indication that inflation is declining rapidly might serve as a stimulus of the bullish sentiment for the copper market as well as for the financial markets as a whole.

Because of continuing political unrest in major producing nations like Chile and Peru, production is expanding more slowly than was anticipated earlier, particularly in regard to copper supply.

In the coming months, there will be a moderate increase in both supply and demand, creating a market that is generally balanced.

However, because the LME’s inventory levels are still quite low, any unexpectedly significant demand would soon push the market into imbalance, which would cause prices to soar higher as a result.

This is the cause of the temporary increase in copper prices in early September 2022, amid mounting worries about a future recession.

Especially considering that the price of the red metal was roughly $3.62 per pound on September 12, 2022, down from its maximum height of $5.03 on March 7 and $4.46 at the beginning of 2021. The price is still far above the $2.17 low set in March 2020, though.

According to the history of copper prices, the market has been heading upward since 2018, correcting a prolonged fall that began in 2010.

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