Join WhatsApp

Join Now

Join Telegram

Join Now

Copper Market to be Well Supplied in 2022 – Neal Bhai

The global refined copper market is expected to be in a significant surplus in 2022, following a small supply deficit in 2021.

The refined copper market saw a deficit of 479,000 mt in 2020, according to the International Copper Study Group, or ICSG.

ICSG expects a small deficit of 42,000 mt in 2021, with 2022 supply forecast to exceed demand by a colossal 328,000 mt.

  • 2022 surplus based on assumption of 3.9% increase in refined output
  • 2022 annual concentrate benchmark could settle in high $60’s/mt
  • Copper market surplus expected to continue over next two years

The 2022 surplus is based on the assumption of a 3.9% increase in refined output, the biggest increase in eight years, with copper demand expected to see a 2.4% increase, ED&F Man Capital Markets analyst Edward Meir said in a note Dec. 7.

Even though a rise in demand is anticipated, this will not be enough to absorb the increase in supply, Commerzbank’s commodities analyst Daniel Briesemann said in a note.

Also, the conspicuous supply difference is due to the expected noteworthy recovery in mine output.

According to ICSG, mine output will rise by 3.9% due to the commissioning of several new projects and the expansion of existing mines, Briesemann said.

This was echoed by UK brokerage Marex Spectron, which said in a research note Dec. 7 that according to CRU — a commodity research company — the view is that after a deficit in 2021, the following two years are expected to see a surplus.

“They see the major projects coming online as Teck’s QBII mine in Chile and Anglo’s Quellaveco project in Peru which could add 200,000 mt. Then you have Ivanhoe’s mine in [Democratic Republic of] Congo which could add a further 70,000 mt. Also, you have the ramp up at Freeport’s Grasberg [in Indonesia] which could potentially add 110,000 mt,” Marex said.

Secondary production

Aside primary copper production, an increase in secondary production, from scrap copper, was also likely to contribute to copper’s surplus, Briesemann said. The supply chain was not encountering the same bottlenecks as earlier on during the pandemic, with operations more fluid following the easing of lockdown restrictions, he added.

Commerzbank’s analyst noted that the higher copper supply was also essential in restocking the heavily depleted inventories.

“Stocks in LME warehouses are only slightly above a 16-year low, and those in SHFE warehouses are as low as they were last in 2009,” Briesemann said.

This was echoed by ED&F’s Meir: “Copper inventories remain critically low and are offering invaluable pricing support. Shanghai-bonded stocks fell to multi-year lows this past month, while LME stocks tumbled by 40% in November alone.”

UK brokerage Liberum analysts, led by head of commodities strategy Tom Price, said in a research note Dec. 7 that global exchange inventories were down 60% since April, while on the other hand global scrap flows remained constrained.

“A recent pullback in China’s imports is probably a seasonal event/credit-related, set to reverse in 1Q22; spot TC/RCs [spot copper concentrate treatment and refining charges] have stabilized in-line with 2021’s contract $60-6c/lb,” Liberum said.

Concentrate benchmark

ED&F’s Meir said that the concentrate market looked to have tightened slightly since mid-September looking at the mild decline in spot TC/RCs.

“More importantly, long-term contract negotiations remain stalled although there is some hope that the benchmark price would be settled before Christmas. Chinese buyers are balking at entering iron-clad long-term deals, having gotten burnt this year by soaring backwardations,” ED&F’s analyst said.

For 2021, the annual concentrate benchmark was settled at $59.50/mt, Meir said.

“For 2022, it could settle in the high $60’s, reflecting higher mine production (+3.9% projected by the ICSG), but we would not be surprised to see some pricing clauses inserted in the event that back surface with the same intensity as they did over the past few months,” the analyst said.

Copper Prices

With supply prospects looking optimistic, “many are calling for lower prices heading into 2022,” Meir said, with ED&F’s December copper price range between $9,315-$9,880/mt.

Reiterating the expectation of the global copper market being well supplied in 2022, “the market could therefore catch its breath before probably turning into a structural supply deficit later on,” Briesemann said.

“In our view, the envisaged surplus should counteract strongly rising prices. We expect a (moderate) setback in prices in line with the improved supply situation. At the end of next year, the copper price should be trading at $9,500/mt,” Commerzbank’s analyst said.

UK broker Liberum copper forecast stands at an estimated $7,800/mt for 2022, $6,698/mt in 2023 and $6,635/mt, while Standard Chartered Bank’s forecast stands at $9,150/mt for 2022 and $8,300/mt in 2023.

The London Metal Exchange three-month spot copper price was trading at $9,588/mt ($4.35/lb) as of 15:00 GMT, against the closing price of $9,505/mt on Dec. 6.

The LME 3M spot copper price hit a record high of $10,747.50/mt on May 10.

Spread the love

Neal Bhai has been involved in the Bullion and Metals markets since 1998 – he has experience in many areas of the market from researching to trading and has worked in Delhi, India. Mobile No. - 9899900589 and 9582247600

Leave a Comment