That bullish view appears to be shared by Glencore boss Gary Nagle, who predicted “a huge deficit” coming in copper.
While some traders had been anticipating that a burst of new supply would temporarily weaken market fundamentals near-term, Goldman Sachs believes this soft patch is failing to materialise.
The broker now forecasts that the copper market faces a 178,000 tonne deficit next year, compared to its previous forecast for a 169,000 tonne surplus.
“The sequential increase in policy targets and commitments to green transition, alongside a minimal supply response so far… have resulted in earlier and larger open-ended deficit conditions that essentially are already here, not beginning at some point in the future,” said Nicholas Snowdon, metals strategist at Goldman Sachs.
The price of the industrial metal, used in everything from electric vehicles to power infrastructure, has dropped 22.5 per cent from a record high of $US10,845 a tonne in March amid persistent recession fears, a stronger US dollar and the slowdown caused by China’s strict COVID-19 measures.
But in November, the metal recorded its biggest monthly advance since April 2021, surging nearly 11 per cent on the London Metal Exchange as China began loosening virus restrictions.
The clearer path to a recovery in the world’s largest copper importer means the metal is near its trough, and next year presents a more supportive macroeconomic backdrop, Mr Snowdon said.
Goldman Sachs forecast that prices will exceed their record high in the next year, increasing its 12-month price target to $US11,000 a tonne from $US9000 a tonne.
The new target implies 31 per cent upside from copper’s current price of $US8405 a tonne.
The expectation of tighter market conditions reflects Goldman’s 434,000 tonne cut to its global mine supply forecasts for next year, which was largely due to lower guidance from operations in Chile.
The broker also increased its China green demand projection by 250,000 tonnes after analysts updated their expectations for installations of solar panels next year.
Goldman is anticipating that China will accelerate its restocking of copper as the nation ramps up toward a post-COVID-19 reopening, and introduces measures to stabilise its troubled property sector.
With global visible copper inventories set to end this year below 200,000 tonnes, “another deficit in the market next year will take fundamental conditions to an unprecedented extreme in terms of tightness,” Mr Snowdon said.
Goldman Sachs upgraded its average price forecast for 2023 to $US9750 per tonne, from $US8325 per tonne previously. The broker now expects prices to average $US12,000 a tonne in 2024, from $US10,750 a tonne previously.
Glencore, one of the world’s largest copper producers, overnight echoed predictions that the copper market is facing an imminent supply shortage.
“There’s a huge deficit coming in copper, and as much as people write about it, the price is not yet reflecting it,” its chief executive Mr Nagle said.
Mr Nagle added that Glencore will wait to lift its copper production until the world is “screaming” for it, according to comments reported by Bloomberg. “We want to see that deficit,” Mr Nagle said.
Glencore could lift its annual copper output by more than 60 per cent from current levels of 1 million tonnes by expanding its current assets, Mr Nagle said.
