Fitch Solutions Country Risk and Industry Research has adjusted its 2020 copper price forecast upwards from $5 900/t predicted in March to $6 000/t as demand is supported by the Chinese government’s stimulus and recovery in global economic activity.
In its outlook for copper prices update, the average price forecast for 2021 has also been raised to $6 300/t from $6 100/t.
However, some volatility in sentiment is still expected as investors react to the latest economic indicator releases, Covid-19 news and the upcoming US Presidential election outcome in November 2020, the group said in an update to the market.
Over the long term, the firm expects prices to remain elevated owing to persistent deficits in the copper market driven by increased demand from the power, construction and autos industries.
Fitch Solutions Country Risk and Industry Research’s bullish March forecast, on the back of an expectation for a strong rebound in Chinese demand owing to government stimulus, has “played out well” over the past six months.
While the country risk team continues to maintain the view that the global economic recovery will be bumpy and uneven, thus extending into 2021, Chinese stimulus alongside domestic industry activity will bolster copper demand over the next few quarters.
“China has substantially increased refined copper imports in order to keep up with demand from domestic industries,” Fitch Solutions Country Risk and Industry Research said, noting that continued recovery in the global economy will also reinforce copper demand growth in 2021 as well as maintain a supportive environment for bullish sentiment in the market.
“We continue to expect concentrate production to ramp up over the coming quarter and expect significant growth in copper mine output over 2021. Barring another round of lockdown measures, most copper mine operations will be able to produce at capacity.”
Further, new copper mining operations are starting to come on line, such as Freeport McMoRan's Lone Star project in the US and BHP's Spence Growth Option in Chile, which will add additional supply to the market.
“As concentrate output increases, this will allow smelters to raise treatment charges, feeding into greater capacity use and higher refined output growth. Ultimately, we expect this trend will be strongest in the back half of our forecast period,” the company noted.
Meanwhile, over the long term to 2029, Fitch Solutions Country Risk and Industry Research expects copper market to remain in a deficit as consumption growth remains strong, driving prices higher over the coming years.
“The uptick in consumption will be led by copper's main end-use sectors of automotive, infrastructure and power,” the firm commented.
Overall, the average global copper consumption is forecast at a growth of 2.2%, outpacing the average production growth of 1.7% year-on-year over the period from 2021 to 2025.
“We expect China will retain its position as the top driver of consumption growth over our forecast period, constituting approximately 52% to 53% of global consumption, as the country's expanding power and construction sectors will offer further support to copper demand.”
Nonetheless, we expect rising mineral production from new mining projects to feed into greater refined production growth, relieving tightness in the market over the coming decade.
However, volatility in the short term will primarily stem from the US presidential election which could unnerve some investors depending on the outcome, while the possibility of increased tensions between the US and China ahead of the elections could also weigh on investor sentiment, cooling down the price rally ahead.
Copper demand could also be undermined in a worst case scenario where a second wave of coronavirus infections leads to the re-imposition of lockdown measures.
“Should this happen again on a broad scale in a key consuming market such as China, we would expect a significant contraction in copper demand placing downward pressure on prices once more,” it concluded.