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Copper prices to find their groove in the second half of 2023

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Welcome to Kitco News' 2023 Outlook Series. Uncertainty continues to dominate financial markets as central bank monetary policies push the global economy into a recession to cool down inflation. Stay tuned to Kitco News to learn from the experts on how to navigate turbulent financial markets in 2023.

(Kitco News) - After a disappointing 2022, the copper market is expected to see another volatile year as the base metal will be caught between a global recession, the ongoing green energy transition, and growing demand for electric vehicles, according to some commodity analysts.

Copper started 2022 on a strong note as the market saw rising demand and limited supply. In the first quarter of 2022, copper prices soared to a record high above $10,000 a tonne on the London Metals Exchange, with U.S. high-grade copper futures pushing above $5 per pound.

However, the record prices were short-lived and a sharp downtrend caused by growing recession fears pushed copper prices to a nearly two-year low below $7,000 per tonne or $3.20 per pound. Although copper has managed to bounce off its multi-year low, it is still preparing to end the year down more than 14%.

Looking ahead, many commodity analysts are expecting copper prices to remain subdued as tightening central bank monetary policies and weak demand out of China take their toll on the market, at least during the first half of the year.

"Recession fears, China's slowdown due to its Covid-19 restrictions, and the Fed's interest rate hiking path will continue to drive copper's short-term price outlook, however tightening supply should maintain the red metal's price support above $7,500/t throughout 2023," said commodity analysts at ING in their 2023 outlook report.

However, ING also sees the copper market improving in the second half of 2023, with prices supported above $8,000 per tonne.

Commodity analysts at Bank of America are cautiously more optimistic that copper prices will see a recovery in the second half of the year after a disappointing start. The bank sees prices potentially pushing above $12,000 per tonne.

"We maintain a cautious view into 2023, expecting prices to average $7,500/t ($3.40/lb) in the first quarter, before rallying to an average of $10,000/t ($4.53/lb) in 4Q23," the analysts said in their 2023 outlook.

Along with Bank of America, Goldman Sachs is also bullish on copper as it looks past near-term weakness. In early December, the financial institution upgraded its 12-month copper price target to $11,000 per tonne, up from its previous forecast of $9,000.

Goldman Sachs sees copper prices averaging 2023 around $9,750 per tonne, with the average price jumping to $12,000 per tonne by 2024.

Commodity analysts at CIBC are slightly less optimistic on copper as they expect a recession to weigh on demand. The Canadian bank sees copper prices in the first half of the year to average around $3.35 a pound, down 11% from their previous forecast. In the second half of next year, prices are expected to rise to an average of $3.65 a pound.

"We forecast weaker copper prices in [the first half of 2023] due to risks of a global economic slowdown, continuing rate hikes, and a stronger dollar," the analysts said. "We forecast 2% copper consumption growth Y/Y in 2023, while highlighting downside risks to our base case if recessions are deeper than expected (1973-75 saw a 14% drop in world copper consumption and 2008-2009 a 16% drop in world ex-China copper consumption)."

However, not all analysts are bullish on copper ahead of the new year. Mike McGlone, senior commodity analyst at Bloomberg Intelligence, said that industrial metals will not be able to withstand the impending slowdown in economic activity.

"Considered a top leading indicator, the extremely inverted US yield curve at the end of 2022 may portend a similar industrial metals downward pendulum swing in 2023. Too cold following too hot is normal in commodities, which may be part of the short-term bearish, long-term bullish case for copper," he said in a recent note.

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2023 could be the start of copper's long-term bull market

For many analysts, copper has become a long-term critical metal as the world upgrades its energy infrastructure and transitions to green renewable energy.

"Longer-term, we believe copper demand will improve amid the accelerated move into renewables and electric vehicles (EVs). In EVs, copper is a key component used in the electric motor, batteries, and wiring, as well as in charging stations. Copper has no substitutes for its use in EVs, wind and solar energy, and its appeal to investors as a key green metal will support higher prices over the next few years," said analysts at ING.

In a report from the summer, analysts at S&P Market Intelligence said that it is expected that global demand for copper will double by 2035. The research firm expects to see significant copper deficits by 2025.

"Copper — the ‘metal of electrification' — is essential to all energy transition plans. Deeper electrification requires wires, and wires are primarily made from copper. Technologies critical to the energy transition, such as electric vehicles (EVs), charging infrastructure, solar photovoltaics (PV), wind, and batteries all require much more copper than conventional fossil-based counterparts," the analysts said. "The potential supply-demand gap will be very large as the transition proceeds."

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