Investment banking company UBS says physical premiums for copper have spiked across regions, alongside falling exchange inventories globally, particularly in China.
Copper was up 18% in October and, given the risk power curbs present to refined copper supply, UBS is raising its copper price forecast to $12 000/t for the coming quarters, followed by some levelling off.
In October alone, exchange inventories have dropped by almost 70 000 t to only 279 000 t. For reference, inventories at exchanges have averaged 502 000 t over the last five years.
Moreover, UBS estimates total above-ground inventories to be about 4.3-million tons – which equates to about 64 or 65 days of consumption, compared with the five-year average of 70 days.
While there are sufficient global stocks for now, the latest inventory dynamics and lack of metal availability are worrisome.
Not much is needed for refined production curtailments in China or in Europe to push exchange inventories close to zero.
The magnitude of refined production curtailments linked to higher energy costs and power outages is unclear, but physical hoarding alone is enough to push prices even higher, UBS states.
To prevent exchange inventories from depleting completely and help balance the market, we think prices may need to move up by more than one standard deviation from early October levels.
This leaves the copper market with plenty of uncertainty and a large price range (positively skewed) heading into next year, the firm adds.