To understand the actual fundamentals of the copper market, including supply, demand, prices and market outlook or forecasts.
The price of Copper started falling from May 2019 after a strong period in Q2 2019, dropping $200/ton in value in only one day in May, before rebounding from mid-June and going up again.
It even went below $6,000/ton to reach a low of $5,800/ton on London's international metal market and stayed below $6,000 until the end of June.
This was mainly due to concerns about supply and the ongoing trade war between the US and China, both factors which worried investors.
In May, the US President took the decision to double tariffs for a wide range of good coming from China.
Analysts are now expecting prices to rise, as tensions between China and the US should recede.
Analysts expect that prices will keep rising in 2019, with predictions for year-end prices hovering between $6,000 and $6,500.
United Overseas Bank predicts the lowest price at $5,800 whilst OCE Australian Government has the highest valuation at $6,680.
Other analysts expect average copper prices to be $6,173/ton for 2019 compared to $ 6,505/ton last time they were surveyed in May, and of $6,432/ton for 2020, compared to $6,810/ton in their May estimate.
A supply deficit of 178,000 tons is also expected in 2020 and of 170,000 tons in 2020.
In Q1 2019, the market was worried about potential supply shortages, which materialized in Q2 with various supply interruptions. Mine disruptions were much more frequent at the start of 2019 than the whole of 2018.
The copper market experienced a variety of problems recently, including strikes and floods in Chile, as well as unplanned reductions in European and African mines.
Chile suffered from heavy rains and falling ore grades, which reduced its exports in the first semester of 2019 by 14% compared to the same period in 2018.
A major event that affected supply involved changes at Freeport-McMoRan’s Grasberg mines in Indonesia from
open-pit to underground mining, which caused a 40% decrease in production.
According to CRU Group Principal Analyst Robert Edwards, a copper supply shortage is expected, despite the fact that production at Freeport-McMoRan’s Grasberg mines should rebound in 2020,
Another market expert, Colin Hamilton of BMO Capital Markets, stated that the outlook for market sentiment and supply was weak, even if fundamentals recovered in Q2 2019.
The outlook for supply is weak due to a decreasing number of new projects or expansions in the pipeline.
Goldman Sachs is warning of supply shortages to come, that have not been taken into account by the market.
Despite concerns about supply, the demand outlook for copper remains strong, and is expected to keep prices strong.
Part of the demand is generated by the manufacturing of electric vehicles, which should keep growing in the long term, as well as in new technologies.
However, demand can fluctuate and be affected by the US trade war with China, whose developments will have to be followed closely, as they have a strong effect on market sentiment, which could lead to demand possibly going up or down.
Another demand concern is the economic slowdown in China, which reflects in less manufacturing activity, and therefore less need for copper.
The situation in China will, therefore, be the main element to focus on to predict and outlook, whether it is for the trend of their manufacturing activity or their relationship with the US in terms of trade.