Commodities | Apr 11 2024
Bullish outlook for copper prices; bear market not finished for lithium; and value among rare earths miners.
-Bullish copper price forecasts
-Bear market not over for lithium, Goldman Sachs declares
-Valuation upside for rare earths miners
By Mark Woodruff
Bullish forecasts for the copper price
Twenty years ago, copper’s first secular bull market this century was led by China’s urbanisation and industrialisation, and Citi believes the red metal’s second secular bull market is taking hold. Investors are advised to build long exposures in the coming months or risk missing out.
The copper price has rallied by 15% since mid-February, as the narrative and price continue to gather momentum, observes Morgan Stanley. This broker also remains bullish as persistent supply challenges widen the market deficit forecast for 2024.
Citi attributes the recent copper price rise to a surge in net bullish investor positioning, coinciding with a rebound in key manufacturing indicators.
On the demand side, the market is focusing on the positive impact impact of data centres, according to the analysts. While this represents a small share of copper demand for now, data centres demand is growing fast and attracting new investors to the sector, and also boosting the requirement for grid investment.
Citi also points to the new and exciting (mainly US-centric) AI/data centre kicker on top of the decarbonisation-related demand growth via renewables, the grid, and electric vehicles.
This broker also highlights improving manufacturing indicators in the US and China, which suggest a turn in the manufacturing cycle. Looming central bank interest rate cuts are also expected to provide a cushion against further economic deterioration.
Demand for copper out of China is equally robust. The country’s apparent copper demand was strong in January and February, observes Morgan Stanley, with refined imports up by 27% and refined output rising by 13%.
Mine supply disruptions around the globe have been accelerating, notes the broker, which has resulted in material falls for spot concentrate treatment charges. As a result of these lower charges, China smelters are expected to cut back output during the second quarter, which will likely weigh on refined output.
Citi forecasts global copper mine supply growth of just 0.7% in 2024 compared to the 2.3% growth the broker projected in December. This lower supply growth reflects weaker guidance by major listed producers and the closure of the Cobre Panama project, one of the world's largest open-pit copper mines.
The project was forced to shut down after Panama's top court ruled its contract was unconstitutional, following nationwide protests opposed to its continued operation.
Morgan Stanley forecasts a -700kt deficit in 2024 and a fourth quarter copper price of US$10,500/t, suggesting 12% upside from the current price.
The energy transition demand by itself is driving total copper consumption according to trend, explains Citi, so AI and a cyclical upturn for the global economy represent the additional cream on top, driving a total deficit of -1m tonnes over the next three years.
Only higher prices will solve these deficits, in this broker’s opinion.
Citi raises its 0-3 month price forecast to US$9,700/t from US$9,200/t, and suggests sub-US$9,500/t is “cheap” on a six-month to two-year view. Prices are expected to trend higher and average US$10,000/t by the fourth quarter of 2024, and average US$12,000/t in 2026.
This base case scenario for US$12,000/t assumes only a small uptick in cyclical demand growth over the course of 2025 and 2026. In the event of strong cyclical growth, explosive price upside is possible over the next two to three years, with prices potentially rising by more than 66% to US$15,000/t, if Citi's bull case scenario plays out.
Under this scenario, the broker believes copper’s bull market may cost unhedged consumers such as automakers, developers and power companies up to -US$320bn over the next three years, or around 0.4% of global GDP.
While maintaining a high conviction regarding rising copper prices in the coming years, Citi cautions the journey could be choppy in response to swings in cyclical growth sentiment and rate cut expectations.
Bear market not over for lithium, according to Goldman Sachs
Further supply rationing of lithium is needed to reduce the 2024 and 2025 market surplus, in Goldman Sachs’ opinion, and the recent rally in lithium prices should not be interpreted as the end of the bear market.
Indeed, on a recent road trip to Perth, the analysts noted corporate positioning for lower lithium prices for longer.
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