Viewpoint: Cu seen gaining despite trade winds

Refined copper prices are poised to strengthen on synchronized global growth, Chinese infrastructure buildout and emerging supply shortfalls, according to three major global banks. Still, trade war concerns pose a major risk.

US bank Goldman Sachs in mid-June was forecasting copper at $7,300/t in three months, $7,500/t in six months and $8,000/t in 12 months.

"Uncertainties are no doubt great," Goldman Sachs said in late June. "However, it is also important to emphasize that metals fundamentals have not changed meaningfully" since earlier in the month, it said.

"Policy mistakes and a multilateral trade war, although unlikely in our view, could lead to credit crunch in China and a significant slowdown in global growth," Goldman Sachs said.

The US announced on 15 June a 25pc tariff on $34bn worth of imports from China, to take effect on 6 July. Those tariffs took effect last week, with China reacting against a similar volume of US imports and calling the US measure the "first blast in a trade war." The US has threatened an additional $400bn in tariffs against 
China, and other countries such as the EU and Canada are retaliating against earlier US metals tariffs.
Still, Goldman Sachs anticipates that China's buildout of its electrical grid, a major driver of copper demand, will lead to increased spending in the second half of this year, as first-half spending has traditionally lagged full-year targets. That may help pull copper up from recent lows.

LME cash copper has fallen by 16.5pc from a four-year high of $7,262.5/t on 8 June to $6,068/t on 18 July on trade war jitters.

Stepping into the fray, US bank Morgan Stanley on 28 June raised its copper forecast for the next three years. It sees the global expansion continuing through 2019 even as "risks from trade barriers and China policy tightening are building."

It raised its 2018 forecast by 1pc to $3.11/lb ($6,856/t) from a prior forecast of $3.07/lb, while hiking its 2019 forecast by 5pc to $3.14/lb from $2.99/lb ($6,592/t).

It raised its 2020 outlook by 1pc to $3.01/lb from $2.98/lb, even as it still sees it declining from 2019 levels.

Morgan Stanley expects the market to remain balanced through the rest of 2018, with upside risk emanating from potential strike action.

Morgan Stanley expects a supply-driven deficit to emerge in 2019 as the Grasberg mine in Indonesia enters a "transition year". But brownfield projects and some greenfield projects will rebalance the market into 2020 by adding 1.4mn t of supply by 2022.

Societe General forecasts an average copper price of $7,440/t in the fourth quarter of 2018, up from its forecast of $7,000/t for the third quarter. It forecasts the average copper price to drop to $7,250/t in the first quarter of 2019.

Concerns of supply disruptions in South America are waning. Participants started the year with predictions of strikes in Chilean copper mines and the union this week rejected management's latest contract offer at the world's largest mine, Escondida.

Following a decline of 1.5pc in 2017, world mine production is expected to grow by around 3pc this year, then remain unchanged in 2019, the International Copper Study Group (ICSG) reported.

World refined production is expected to increase by around 4pc in 2018, slowing to growth of about 1pc for 2019, ICSG said.

The ISCG reported the world apparent refined usage is expected to increase by 3pc in 2018 and by 2.2pc in 2019. Projections indicate a small surplus of about 40,000t for 2018 and a deficit of around 330,000t for 2019.