Copper demand, price will pick up later in the year, says Fitch
Research Agency Fitch Solutions has revised its 2020 copper price forecast upwards from $5 700/t to $5 900/t.
This is on the back of the agency’s expectation that increased stimulus from the Chinese government will lift prices higher over the second half of the year.
However, Fitch says copper sentiment will remain subdued in the meantime, which is weighing on prices, as investors react to the latest updates on the spread of the Coronavirus, or Covid-19.
The agency forecasts that the majority of shuttered manufacturing hubs and supply chains in China will be freed of restrictions by April, paving the way for higher copper demand later in the year.
Fitch expects prices to remain elevated over the long term owing to persistent deficits in the copper market, which is driven by increased demand from the power and automotive industries.
Copper prices initially enjoyed relief from the US–China trade tension, trading above $6 300/t earlier this year; however, the positive sentiment was short-lived as the virus continued to spread in China and globally.
So far, China’s country risk team has revised its gross domestic product (GDP) growth forecast downward from 5.9% year-on-year to 5.6% year-on-year for 2020.
However, Fitch says Beijing will cushion the impact of the virus by instituting aggressive stimulus measures to maintain its goal of doubling the country’s GDP by the end of the year.
These measures will include the frontloading of infrastructure projects and tax and fee cuts to vulnerable sectors – all of which will lead to increased demand for copper.
Fitch points out that the 2020 average price of copper will remain below the average price of $6 020/t reached in 2019.
The agency says the refined copper market likely experienced a production balance deficit of 62 700 t in 2019 as Chinese consumption growth slowed from 5.6% year-on-year in 2018 to 0.5% year-on-year in 2019.
This year, Fitch forecasts global growth to outpace consumption growth and lead to a surplus.
Beyond 2020, Fitch expects the copper market to swing back into a deficit as consumption growth again recovers, driving prices higher over the coming years.
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