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Copper could fall another 14% and end the year at $8,000 - Capital Economics

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(Kitco News) - Copper's robust rally to record highs in the first half of the year could present the high water market for the base metal as its fundamental supply picture starts to balance out, according one research firm.

In a recently published report, Kieran Clancy, assistant commodities economist, said that shifting global growth forecasts and growing supply will push copper prices back down to $8,000 per ton by the end of the year, and prices could fall back to $7,500 a tonne by the end of 2022.

The new forecast comes as copper prices have fallen 10% from their May highs above $10,000 per tonne. Copper spot prices on the London Metals Exchange are currently trading at $9,343 per tonne. Capital Economic's price target represents another 14% decline from current prices.

In the report, Clancy said one of the biggest factors weighing on gold is shifting growth expectations, particularly from China.

"Although figures released this week showed that economic growth in China remained reasonably robust in Q2, the headwinds to growth are likely to intensify in the second half of the year, particularly in the copper-intensive construction sector," he said.

Clancy added that although global growth remains robust, it is not enough to offset the weakness expected out of China.

As Chinese demand falters, Clancy added that more supply is coming on to the market, particularly as companies take advantage of higher prices.

"Copper ore output among the three largest producers in Latin America – which together make up a little over two-fifths of global copper ore supply – was particularly hard hit by measures to contain the pandemic last year and subsequently by virus-related labour shortages. Output has since rebounded, but still has some way to go before it reaches prepandemic levels," Clancy said.

However, Clancy added that supply still remains the biggest risk to the market.

"Admittedly, there is no shortage of risks which could delay the recovery in copper ore supply, be it resource nationalism, tighter environmental standards, or ongoing wage negotiations," he said.

Another area of supply to watch is the scrap market, which Clancy said they expect will pick up.

"Bringing all this together, we expect that last year's deficit in the copper market will shrink considerably this year and that the market will flip into a surplus in 2022," he said.

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