Prospects for copper, what can we expect from the red metal?

Despite the slowdown in economic activity predicted by market agents and analysts for 2023 in most countries, added to the fear of falling into recession, the copper It is one of basic products that maintains solid foundations that make one think of a inconvenience, or downside risk, limited. Three factors are supporting the price of this metal in the short term: the low level of inventories, the acceleration in the growth of China and supply issues. How are expectations for demand and production of the red metal evolving in the coming months?

On the demand side, this year it is expected that global consumption of copper experience an increase of 2.5%. In the case of Chinawhich consumes half of the copper produced on the planet, the market expects an expansion of 3%, higher than its growth in 2022. This is mainly due to the removal of restrictions imposed by the Chinese government due to its “zero covid” policya better performance of the construction and real estate sectors and investments in the expansion of the national electricity grid, with a focus on non-conventional renewable energies (wind and solar, mainly).

In UNITED STATESwhere the FEED proceeds to a strong withdrawal of monetary stimulus, the market expects its demand to expand by 1%, whereas a few months ago a level of demand similar to that of 2022 was expected at best. in Europe, where a contraction in its consumption of copper Mainly negatively impacted by the energy crisis, the market has now improved its forecasts and expects stable demand.

Beside the copper productionthe market expects 3% growth, in line with operating profit from new mines and the gradual increase in production from operations that started production between 2021 and 2022 (rise in power). An increase in production is expected in Chile and Peruthe two most important countries in this sector (representing 35% of world copper production).

In the case of Chile, an expansion in production is expected, driven by the resumption of production at Escondida and the operations of Codelcoand the production of Quebrada Blanca 2. However, the resumption of production is not without problems, as we could see in 2022 at Codelco, whose production fell by 10%, and where most of the reduction of production was caused by technical issues and weather events.

On the other hand, in the case of Peruthe expansion of production in 2023 will be mainly explained by This oldwhich began production in the second half of 2022 and is in the process of reach full production capacity. In particular, Quellaveco is expected to produce over 250,000 metric tons (MT) of copper in 2023, more than the 94,000 MT it recorded in 2022. Certainly, if it does not yield the social protests in the south of the country, where most of the copper is produced, less production can be generated in the market.

Out of South Americait is expected that the production of African countries such as the Democratic Republic of the Congo and Zambia continue to increase their production. In the particular case of the Democratic Republic of Congo, Kamoa Kakula should be able to deliver an additional production of 80,000 MT of copper in 2023 and an additional 60,000 MT in 2024. Moreover, the production of the two countries now represents 15% of global mining production, whereas 5 years ago it was 11%.

Taking into account that an offer with a higher price growth demand, the expected surplus is quite low (between 50,000 and 70,000 MT of copper). If we add to this fact that copper inventories in major warehouses are at historically low levels (copper inventories represent 3.5 days of consumption, when they are normally 10), it is not surprising May the market not be so pessimistic towards copper: today they expect a price between 8,600 USD and 8,800 USD per MT.

Of course, despite Macroeconomic environment More complicated than seen globally, the medium-term outlook for copper has not changed. The world needs more metals to meet population growth and growing cities, and to increase electrification and decarbonize the economy. The challenge is great, especially since after 2025 no significant increase in copper production is on the horizon.