Green copper. Image: Glencore via Instagram
In a new research note, Goldman Sachs says the copper price is “poised for the next leg higher” as short term headwinds fade and fundamentals point to a significant demand boost further out.
Goldman says the copper concentrate market remains very tight, creating a bottleneck for primary metal production in China, reinforcing its projection for a significant 430,000 tonne refined deficit in the second half of the year.
Goldman projects a 200,000 tonne deficit next year, and also halved its projected surplus for 2023 to 129,000 tonnes “after which open-ended deficits start”.
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.
“…WITH A FINITE AMOUNT OF STRATEGIC RESERVES, POLICYMAKERS ARE SIMPLY RAISING RIGHT TAIL PRICE RISKS, PARTICULARLY AS WE EXPECT THE BULL MARKET TO BE SUSTAINED ON A MULTI-YEAR BASIS IMPLYING A DEPLETION RISK ON THIS STOCK SOURCE”Goldman Sachs
While TC/RCs have risen to around $45 a tonne in July from historically low levels of just over $20 a tonne in April, today’s charges still compare to more than $70 a tonne in June last year and spikes as high as $130 in the 2010s.
Gone in 36 hours
Chinese headwinds are receding and demand in the rest of the world is robust, evidenced by premiums for physical copper in the US rising to five year highs.
Goldman believes the copper market has now moved beyond Beijing’s attempts to cool prices and the impact of sales from the country’s strategic reserves – the “final tool for generating downward price pressure (short of slowing overall activity)” – in fact creates conditions for price rises down the line:
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