Overview of Copper
COPPER: TEMPORARY FALLBACK SETS STAGE FOR NEXT MOVE HIGHER
Copper prices have fallen back from their recent peak of $3.25/lb to around $3.10/ lb, which we have long-viewed as a level better reflecting current market fundamentals. Copper markets are expected to register a supply deficit in 2018 for the first time since 2010, and while we believe that the market will require further years of deficits to burn through off-exchange inventories before prices rally further, our outlook sees steady supply shortfalls in each of the next 5 years that grow larger as the mine supply pipeline continues to empty (chart 4). Recently high prices have incentivized additional metal onto global exchanges and pushed inventories to their highest level since late-2013, spooking investors and sending net speculative positions to their lowest level since October 2016, when rising speculative interest first prompted copper to break higher. This rationalization of bullish sentiment was a necessary step before copper prices could move sustainably higher over the coming years. Copper demand growth is expected to remain robust over the coming decade, both due to near-term tailwinds associated with booming economic growth and the longer-term trend toward the copper-intensive electrification of the global economy. On the supply-side of copper’s ledger, we are already beginning to see reports of emerging deficits in the copper concentrate market mirroring the initial stages of zinc’s latest bull rally. Copper prices are forecast to average $3.10/lb in 2018 and rise to $3.25 in 2019.
Source: Scotiabank Commodity Price Index, May 10, 2018