Copper to retest US$10,000 a tonne: Citi, BMO

Copper prices may rise past the US$10,000-per-tonne mark again in the coming weeks due to a Chinese smelter supply shortage and anticipated grid investments by the Asian giant, according to analysts at BMO Capital Markets and Citigroup.

Miners are paying significantly lower than usual charges to China’s smelters for copper, lead and zinc while some producers already are able to secure low terms for next year, Colin Hamilton, director of commodities at BMO Capital Markets, said on a podcast Friday.

“Which is a clear expectation that this situation may not be alleviated anytime soon,” Hamilton said. “As a result, there is a growing feeling that annual concentrate benchmarks may be heavily diluted or even abandoned.”

Copper was at US$4.67 per lb. on Friday, up about 8% from US$4.31 per lb. on June 27, its low point following the record May 20 price of US$5.11 per lb., according to Trading Econommics. The price has to hit US$4.54 per lb. to break the US$10,000-a-tonne level.

Third Plenum

The world’s biggest consumer is widely anticipated to introduce further stimulus to upgrade its renewable energy infrastructure at the ruling Communist Party’s Third Plenum policy meeting starting July 15, Citi analysts said in a note on Wednesday. The party usually holds seven plenums in a five-year period.

The expected measures targeting domestic property and grid investments should support copper prices in the near term, they said. Longer term, the metal has a chance to rise even further and reach US$12,000 a tonne due to interest rate cuts in major economies.

United States Federal Reserve Chair Jerome Powell said this week that inflation is returning to a downward path, sparking market confidence about monetary easing.

Citigroup also noted that the recent pullback in copper is mainly due to weaker manufacturing data globally, which it says is likely only temporary.

While cyclical demand might have softened in June, the overall copper consumption for this year’s first half remains robust at around 4% year-over-year growth, Citi said.

Electrification

“Copper remains the best long-term way to play the acceleration in global electrification (though silver and tin will also benefit),” Hamilton said. “We continue to look for more evidence of Chinese buyers stepping back in to increase exposure.”

However, zinc is a better opportunity for investors because the market underappreciates the shortage in zinc concentrate with five Chinese smelters undergoing maintenance this month, he said.

“If the concentrate tightness still persists when the stronger steel output season of September-October arrives, we would expect some upward pressure perhaps on zinc prices,” he said. “Concentrate purchasers will be keeping a close watch on the ramp-up at Ivanhoe Mine’s (TSX: IVN; US-OTC: IVPAF) Kipushi operation.”

Fourth-largest

The mine has produced its first zinc concentrate and may produce 100,000 to 140,000 tonnes this year as the world’s fourth-largest output, strengthening the country’s role in the metals markets, the analyst said.

Hamilton said China could increase copper supplies by pushing deeper into Africa, including the Democratic Republic of Congo and less explored countries.

“Correctly, China’s investment is viewed as strategic such that individual project returns and long-run prices don’t matter as much as classical economics would dictate,” he said.

“We would expect a lot of focus on China’s imports of concentrate from less established supply jurisdictions in trade statistics as 2024 progresses.”