Copper, the most efficient heat and electrical conductor, referred to as “the electrification metal,” will be in the spotlight now more than ever as governments throughout the globe scramble to electrify their economies.
The red metal, which has traditionally served as a gauge of economic health, has had a difficult year in 2022 as a result of macroeconomic and geopolitical events that have dampened demand. Specifically, China’s zero-covid policy and weakened real estate market, global monetary policy tightening, and an energy crisis caused by Russia’s war on Ukraine.
However, some of the biggest institutions on Wall Street believe that the combination of long-term demand tied to the energy transition and short-term supply constraint would produce the ideal market conditions for the metal in the years to come.
A weaker US dollar and expectations of improved demand following China’s announcing relaxation of its zero-COVID policy as well as a renewed commitment to strengthening its economy and real estate industry helped copper prices rise on the last Monday of the year.
Copper for delivery in March rose 0.3% on the Comex market in New York, touching $3.81 per pound or $8,382 per tonne. LME copper prices peaked at over $10,600/t in March this year.
Given the right circumstances, copper, according to commodities analysts at Bank of America, might increase to $12,000/t in the second quarter of 2023. For this to happen the U.S. Federal Reserve would need to shift toward a less aggressive tightening of monetary policy, preventing the U.S. dollar from rising further, therefore sustaining demand for the planned energy transition.
Commodity Strategist Michael Widmer stated in Bank of America’s 2023 metals forecast report that “Notwithstanding the macro headwinds, physical markets have remained tight, highlighting the lack of spare copper units available at present,”.
Widmer also stated that global copper demand has been resilient, growing on an annual basis year to date as purchases outside of China have reached record highs.
While macroeconomic obstacles are anticipated to endure beyond 2023, Widmer believes offtake will remain favorable when measured against global GDP growth.
“Taking this a step further … China’s grid spending has offset weakness in the wider economy: indeed, building out the electricity infrastructure has completely offset weakness in the housing market,” Widmer said, adding that the critical question going forward is whether this was a one-off event or the start of a structural trend.
He also stated that the relationship between global copper demand and industrial output growth has weakened in the last year and a half.
“In our view, this confirms to some extent that green spending has already supported global copper demand and physical markets,” Widmer said.
According to statistics compiled by Bank of America on demand growth rates from sectors tied to net-zero policy, copper consumption would increase by 4.5% year on year until 2030. Widmer stated that prospective demand growth has averaged 2.1% over the last two decades.
To read our full disclosure, please click on the button below:
 stock is held by institutions and Eric Sprott){kind=link}