The third most widely used metal on Earth has been in short supply throughout 2021. However, copper is still gimped despite production recovering, and industries relying on the green metal are firmly rebounding. Copper demand is at far higher levels than we’ve seen in a while, and there’s no chance of slowing down as supply chains and manufacturing begin to regain a sense of normality. Institutional investors are torn between two outlooks, but, nonetheless, the trajectory for copper appears clear with a good chance of a breakout. We’ll be taking you through an overview of the copper commodity and what you can expect during the first half of the year.
Copper’s Two Potential Outcomes
The first forecast held by a significant number of institutional investors and analytics firms is that the LME spot market for copper will continue plummeting as it has for the last few years, although the dip is anticipated toward the close of 2022. Credit risk and market research leader Fitch Solutions is confident that copper will continue falling and expresses a bearish outlook. Copper prices are expected to balance down to $9,200 per ton this year, which is quite a way away from the near-equally-low World Bank Consensus estimate of $8,500 for 2022. Bearish investors like Fitch are looking at elevated prices over the first three to six months of the year, with copper costs steadily tapering off as production and inventories begin to cope with global demand.
Bullish Investor Sentiment
On the other side of the fence, we have bullish investors like Goldman Sachs, who are equally confident as their opposing traders that copper is on the rise and will peak at $15,000 by as soon as 2024. Motivating factors include power shortages in China that have limited the production of copper and other metals while escalating energy costs continue to shoot up the price of production steadily. When you couple this with the rising demand for copper from all industries, from electric cars to electronics and energy itself, it starts looking quite possible that the world may end up running into a deficit by the end of the year, steadily driving prices.
Copper Production On The Rise
Historically, the world has consumed roughly 20.6 million tonnes of copper a year up until 2020, but investors have to factor in the immense demand for renewable energy, electric vehicles, and other copper-intensive applications present today. Data from the International Copper Study Group forecasts global copper reserves of 22 million tons for 2022, which is a 3.9% rise from 2021. As of the beginning of 2021, that’s expected to leave a surplus of 328,000 tonnes. However, take away the Copper that Russia would have supplied, which tallies 920,000 tonnes or 3% of the globe’s reserves and factor in the exponential boom of certain rebounding industries, and a different situation arises.
Escalating Demand For Copper And Transitional Metals
Traders should consider that copper is classed as a transition metal along with low-carbon aluminium, nickel, lithium and cobalt. Copper and these transitional compounds are in immense demand by electric vehicles, consumer electronics and renewable energy sectors like wind farms and batteries. Electronics comprise 60% of the global copper demand, and growth during 2021 is largely expected to surpass pre-COVID levels. Elon Musk announced that 2022 is the year that Tesla will be scaling EV production to greater levels than ever seen before, while both the industrial and consumer electronic industries at large are rebounding strongly as well.
Widespread Demand From All Sectors
Already, the global automotive electronics market is expected to grow by 7.1% over the next three to five years.
Consumer electronics in the US is expected to grow by at least 4.3%, and global electric vehicle and electric vehicle charging markets are among the fastest-growing in the entire automotive industry this year. In China alone, electric vehicle sales are forecast to rise 47% for 2022 according to the China Association of Automobile Manufacturers, while subsidies in Europe bolster EV business, and the possibility of further EV subsidies pave the way for a record year for electric vehicle sales in the US.
Feasibly High Price Forecasts For Copper
Goldman Sachs has set an optimistic price target of $12,250 per tonne for 2022 for what the firm is calling the ‘New Oil’ followed by a $12,000 average in 2023 – an opinion shared by ANZ of Australia and Germany’s Commerzbank, whom all place their 2022 forecasts at well over the $10,000 mark. So far, for 2022, copper is trading 5% higher than the last half of 2021 and a whopping 39% higher than the equivalent half of the year. In 2021, copper traded at an average price of $7,944 per ton, whereas 2022 has delivered an average of $9,534 per ton – a clear indication that this commodity is on the rise. The sanctions imposed upon Russia constrains the supply of copper and many other metals, and the world has seldom seen demand as high as it is presently.
Regardless of which opinion the individual investor holds for copper by the end of fiscal 2022, we feel that steady spikes in short-term growth are highly likely.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only