Copper prices have drifted lower this week but remain within striking distance of $10,000 at $4.40 a pound, or $9,700 a tonne in New York as worries about low stocks persist.
The rally in copper, which has more than doubled from its covid-lows has been fuelled by a widely-held belief that demand for the bellwether metal will receive a massive boost, not just from a post-pandemic economic boom, but also from the worldwide push for decarbonisation.
While almost all agree copper’s longer-term future is bright, there is much less consensus on how much the price of the metal will shine during the next few years.
A new report by Capital Economics argues there is weakness ahead. The London-headquartered independent researcher expects copper prices to fall heading into 2022 as demand from China wanes and primary supply ramps up, notably from Kamoa-Kakula in Congo, one of the biggest mines to enter production in decades:
“First, high copper prices have accelerated ramp-ups of mine supply, which had been slowed by strikes, poor weather and covid-19 restrictions. Mined copper now appears to be coming back at pace, as shown by the increase in the spot treatment charge.
“Second, we expect copper demand to ease back. Our in-house demand proxy suggests that demand has already fallen. This is driven by the slowing of the Chinese construction sector, the largest copper end-user.
“Furthermore, we expect demand for goods containing copper to also cool as global spending patterns shift away from goods to services as lockdowns end and international travel opens.”
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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. While TC/RCs have risen to around $60 a tonne from historically low levels of just over $20 a tonne in April, today’s charges still compare to spikes as high as $130 in the 2010s.
Capital Economics now expects the global copper market to enter a surplus of some 200,000 tonnes next year after four years of deficits, including a shortfall of more than 800,000 tonnes in 2020.
Your chart are not accounting for the copper is going into item that are much longer lived and harder to recycle.