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General Precious Metals
Copper prices could see a ‘supercharged recovery’ this year — but analysts are still cautious long term
Copper prices are likely to stabilize in the coming quarters despite a recent surge in the red metal’s value, analysts have predicted.
Three-month copper futures on the London Metal Exchange (LME) broke the $6,000-a-ton threshold by the end of June — a far cry from its low of around $4,626.50 at the height of Covid-19 fears in March.
On Monday, three-month copper on the LME gained 1.2% to trade at around $6,088 a ton, Reuters reported.
However, according to experts at Citi, the metal — often seen as a bellwether for the general state of the global economy — could be overvalued going into the third quarter.
“The copper rally over the past month from $5,700 a ton to over $6,000 a ton has occurred against a backdrop of flat to falling equity prices and bond yields, leaving copper looking overvalued by $220 to $420 per ton based on these historical relationships,” analysts from the bank said in a note last week.
“Overall, we stick with our very near-term point price target of $5,750 a ton (versus spot of $6,050 a ton) though we see a window for a pullback as the 2 to 4 weeks, and ultimately we recommend buying on dips.”
Analysts at Saxo Bank, meanwhile, have been even more bearish in their outlook for the red metal. They argued widespread beliefs that the economy will return to normal within the next few quarters “will most likely turn out to be wrong.”
“Copper’s recent recovery to pre-pandemic levels will challenge the metal’s ability to reach higher ground in the third quarter,” Ole Hansen, head of commodity strategy at the trading firm, said in a recent note.
“A recovery in Chinese demand combined with supply disruptions at mines in South America were the triggers that finally forced speculators back into long positions following the break above $2.50/lb. The risk of a second wave — especially in the U.S. and China, the world’s two biggest consumers — may force a rethink and we see no further upside during the coming quarter.”
Downward pressure on prices
Eleni Joannides, principal analyst in Wood Mackenzie’s copper team, told CNBC that the consultancy was forecasting stronger demand for copper in the second half of this year as economies and industries restarted.
However, she noted that question marks remained around the degree to which the economy would bounce back before the end of 2020.
“There’s a whole slew of the population out there that is either furloughed, is losing their job or doesn’t know what’s going to happen to their job, so the risk is that they’re not going to be going out into the market buying some of the big ticket items that contain copper,” she explained in a phone call. “So there’s a concern that whilst demand should, in theory, pick up, it may not pick up to the degree that we expect because people aren’t going to go out there and buy a new car or a new washing machine.”