Viewpoint: Copper demand in question for 2024

US copper market volatility is likely to persist in early 2024, amid concerns over domestic inflation and market factors in China, the leading global consumer.

US inflation has cooled over most of 2023 — with consumer price gains starting the year off at a peak in January of 6.4pc but hovering just above 3pc since June. The consumer price index is expected to continue easing next year but the Federal Reserve does not see inflation falling to its target of 2pc until 2026.

High interest and inflation rates pressure consumer demand — most notably in areas such as construction — which in turn reduces copper demand.

China, the world's leading copper consumer, reported its official manufacturing purchasing managers' index (PMI) fell to 49.4 in November from 49.5 in October, according to data released by the National Bureau of Statistics. This marks the second consecutive drop and signals that factory activity is still in a state of contraction.

Chinese fiscal and political stimulus measures have so far provided no sign of significant support in early 2024, as the measures have not yet boosted the country's economy nor its demand for base metals, including copper.

And China's property sector, typically the biggest consumer of copper in the country, is struggling. Home prices and sales have been down following the stimulus-driven boost of prior months. A drop in infrastructure investment further showed China's property sector continues to face problems, which ultimately weighs on industrial metals given the sector is the biggest demand driver. China has issued some policies aimed at supporting developers' access to financing and reducing mortgage rates but real estate companies were still defaulting on payments.

The US dollar index was strong in 2023 and is forecast to remain strong in 2024, according to a report by Goldman Sachs. The US dollar index (DXY) was 101.71 on 22 December, compared with 104.33 around the same time in 2022, but these levels were well above averages from the prior several years.

Demand and supply

Demand in 2023 was lower than in 2022 by about 10pc, according to a survey of fabricators, but they expect 2024 to be flat from those levels.

Although demand for copper to manufacture electric vehicles, charging stations, energy storage devices, wind and solar power systems and the overall electric grid is expected to grow in the next several years, plans by automakers Ford and GM to slow investments and roll outs of new electric vehicles could delay any forecast uptick for the time being.

In addition, increased registered copper warehouse stockpiles may withhold fundamental support for copper premiums. Cumulative Shanghai Futures Exchange, London Metal Exchange, and Comex exchange warehouses grew to 211,758 metric tonnes (t) on 22 December, up by 26pc from a year earlier.

Market participants also predict that the trend of African mined copper flowing into Northern Europe, displacing Chilean metal and subsequently pushing that metal to the US, will continue in 2024.

Outlook

The world refined copper market balance is expected to end 2023 with about a 27,000t deficit this year, followed by a 467,000t surplus in 2024, according to October data from the International Copper Study Group (ICSG).

Market participants have become increasingly skeptical over the 2024 surplus as the Panama supreme court recently ruled to close the Cobre Panama mine over contract terms.

The forecast for 2024 remains a moving target as ISCG expects actual market balance outcomes to deviate from recent forecasts because of unforeseen developments, including community blockages of mines in Peru, and "operational and geotechnical issues, equipment failure, adverse weather" and other issues.

The market expect the first quarter price to remain volatile yet not high enough to incentivize new copper mine projects to meet future demand.

By Mike Hlafka