Copper Market Update: March 2019

Copper has gained 9 % in 2019, with prices rallying from an 18-month low of $5713/t on the 3rd January to an eight month high of $6556/t at the end of February. Renewed optimism over U.S. China trade relations in 2019 has seen the market adopt a risk-on mentality, and an agreement is seemingly getting closer after numerous rounds of high-level talks between officials from both countries. We expect a deal to be struck in the near future, although much of the upside potential has already been priced in to the copper market. In February, factory output was in contraction in nine of the top fifteen global copper consumers (collectively the nine in contraction accounted for 70.9% of 2018 copper consumption). Alongside weak manufacturing data, the Yangshan copper import premium slipped to its lowest in 22 months highlighting weak demand for copper in China. Premier Li Keqiang has warned of the challenges the Chinese economy faces, with the government announcing a GDP growth target of 6.0-6.5% in 2019 and further stimulus in the coming months. On the supply side, there were multiple disruptions in February to both the copper concentrate and refined copper markets, adding to an already tight picture for both in 2019. In the coming months we expect prices to receive a further boost from the U.S. China trade deal. However, the global economy will remain weak, with manufacturing continuing to struggle and Chinese econom ic growth slowing. Thus, once the market overcomes the initial euphoria of a trade deal, it may find economic data points pulling prices lower. In the second half of the year, w e expect the Chinese economy to stabilise, avoiding a deep slowdown, as the recent policy stimulus starts to feed through. This, alongside a broader improvement in the global economy as political uncertainties in Europe are resolved, should support the demand side, and therefore prices. At present, we hold our price forecast for 2019 at $6425/t and our forecast for 2020 at $7000/t.