In a new research note, Goldman Sachs says the copper price is “poised for the next leg higher” as short term headwinds fade and fundamentals point to a significant demand boost further out.
Goldman says the copper concentrate market remains very tight, creating a bottleneck for primary metal production in China, reinforcing its projection for a significant 430,000 tonne refined deficit in the second half of the year.
Goldman projects a 200,000 tonne deficit next year, and also halved its projected surplus for 2023 to 129,000 tonnes “after which open-ended deficits start”.
Treatment and refining charges (TC/RCs) paid by miners to smelters to process concentrate into refined metal rise when supply is ample and fall when smelters are forced to compete for scarce material.
“…with a finite amount of strategic reserves, policymakers are simply raising right tail price risks, particularly as we expect the bull market to be sustained on a multi-year basis implying a depletion risk on this stock source”
Goldman Sachs
While TC/RCs have risen to around $45 a tonne in July from historically low levels of just over $20 a tonne in April, today’s charges still compare to more than $70 a tonne in June last year and spikes as high as $130 in the 2010s.
Chinese headwinds are receding and demand in the rest of the world is robust, evidenced by premiums for physical copper in the US rising to five year highs.
Goldman believes the copper market has now moved beyond Beijing’s attempts to cool prices and the impact of sales from the country’s strategic reserves – the “final tool for generating downward price pressure (short of slowing overall activity)” – in fact creates conditions for price rises down the line:
“…with a finite amount of strategic reserves, policymakers are simply raising right tail price risks, particularly as we expect the bull market to be sustained on a multi-year basis implying a depletion risk on this stock source.”
Besides, as Goldman points out, Beijing’s first batch of copper on auction of 50,000 tonnes amounts to just 36 hours of Chinese copper consumption.
Goldman also upgraded its longer-term outlook for copper based on a significant lift in electric vehicle sales over the next ten years.
The EU recently put forward even tighter emissions standards – 55% reduction by 2030 and a ban on sales of gas-powered vehicles by 2035.
Click here for an interactive chart of copper prices
That, coupled with higher EV sales in China boosted by the popularity of cheaper LFP battery-powered cars, lifted analysts’ predictions of EV sales by 30% or three million more units by 2025. By 2030 EV sales would reach 32 million a year, versus a tenth of that last year.
Goldman now expects average annual additional copper demand coming from EVs of ~200kt in the next ten years, translating to green copper demand of 2.7 million tonnes in 2025 and 5.8 million tonnes in 2030 – accounting for 18% of global copper demand.
Another factor priming copper for a move higher soon is a 75% drop in net long positioning (bets that the copper would be more expensive in future) in the US from its peak in December and, a 30% decline in open interest in Shanghai creating a re-entry point for bulls.
In the report Goldman reiterated its bullish forecast for a copper price of $11,000 a tonne (just below $5 per pound) by the end of the year and $11,500 by this time next year.
On Friday in New York copper was trending weaker with September futures down 1% to $4.48 a pound or $9,875 a tonne, implying a double digit percentage move higher if forecasts are met.
