Consumers around the world felt it almost immediately when Russia invaded Ukraine early last year and the ensuing supply chain disruption and Western sanctions sent oil prices soaring. In the US, rising crude costs pushed the average price of a gallon of gasoline up from $3.40 in January to a record high of just over $5 in June. But since then, oil and gasoline prices have fallen back to pre-war prices as China’s weaker-than-expected post-epidemic recovery hit crude demand. As governments and corporations around the world continue to wean themselves away from fossil fuels, a little-known new commodity could soar instead of black gold.
“For us at Citi, copper is a bull trade for the energy transition. The world is currently in a cyclically weak state, which means trade is on hold. But copper’s final bull market could make oil’s famous 2008 rally look like child’s play,” Citi Max Layton, managing director of commodities research, said in a video presentation for clients on Aug. 23.
Leiden refers to period of rising oil prices Spiky Before the global financial crisis, oil prices rose from $50 a barrel in mid-2006 to $140 a barrel in late 2007 amid strong demand from emerging markets and stagnant global crude production. The veteran commodities analyst believes that copper prices could see similar price gains over the next three years, as the metal has become a favorite of commodity traders seeking the energy transition theme.
Copper plays a key role in electric vehicle batteries and other green energy technologies, leading some to refer to it as “the new oil’. The metal is used in solar panels, wind turbines, cables, and even your iPhone. In fact, copper is so widely used in construction, manufacturing, and the production of electronics that it’s often counted as a global economic activity A proxy for and business cycle indicator, earning it the nickname “copper”.Dr. Copper“.
Doctors have been sounding the alarm lately (copper prices are falling) as the global economy struggles to regain its pace post-COVID-19, but if you ask Citigroup, this is just a small setback for the king of the energy transition.
A brief setback for energy transition darlings
Copper prices have plummeted in 2023 amid weaker-than-expected demand for the important metal amid a sluggish Chinese economy and slower global growth.London Metal Exchange Spot copper price It is now at $8,359, down 11 percent from a mid-January peak of more than $9,400 a ton. But Citi’s Layton sees the pullback as an opportunity.
Because copper prices tend to rise and fall in tandem with global economic activity, many commodity traders have been forced to wait on the sidelines for global economic growth to improve before buying copper, creating a “massive queue” to buy the metal. to Citigroup.
Layton said it made sense for investors to be “cautious” about investing in copper in the second half of 2023, partly because of China’s struggling economy.
The country’s role as the world’s factory and its ongoing push for infrastructure and housing projects have given it a huge presence in the copper market over the past four decades. Even with the ongoing crisis in China’s real estate sector, China remains the world’s largest copper consumer by 2022, 55% world supply. But in the first six months of 2023, China imported just 1.65 million tonnes of refined copper, down 12% from a year ago, amid sluggish real estate and manufacturing.
The good news is that Layton doesn’t expect this trend to continue. He advises investors to slowly start buying copper over the next 12 months, and believes China’s eventual economic recovery and energy transition will cause prices to soar to $15,000 a tonne over the next three years. “By 2025, the expected return is 50% to 100%,” he said of this “bull market” scenario.
However, Citi also outlined a pessimistic scenario in a July report in which copper prices could fall 10% to $7,500 by 2025. In this scenario, China’s economic recovery would be slower and less robust than expected, while rate hikes in the US and Europe would have a “than-anticipated impact” on global growth, leading to weak copper demand.
Still, the board of Polish mining giant KGHM Polska Miedź, the world’s eighth-largest copper producer, backed Citigroup’s bullish outlook earlier this month in its second-quarter earnings report.
According to a translation provided by AlphaSense, the company said copper prices in 2023 would be “suppressed by a slowdown in the Chinese economy,” noting that hopes for a quick recovery from the outbreak in China this year had been dashed. But in the longer term, global demand for copper will keep rising as China’s economy recovers, the rise of electric personal vehicles (from cars to e-bikes) and the energy transition, KGHM said. Rising copper demand, coupled with limited supply due to severe constraints on new mining projects around the world, including increased taxes and environmental regulations, is expected to continue to increase copper prices in the coming years.
“The aforementioned supply constraints, combined with the pace of growth in copper demand spurred by strong trends in electric vehicles and the green revolution, will support copper prices in the long run,” KGHM’s board wrote.
Svlook
