MPA's Copper Price Forecast
Firmer copper prices for a year or so
For industrial raw materials, bear markets tend to end when the global industrial production (IP) growth cycle bottoms out: a concurrent indicator.
The transition from surplus to deficit in individual commodity markets
usu-ally happens appreciably later and is a lagging confirming signal.
According to CHR’s Global IP watch, year-on-year (y-o-y) global IP growth
finally bot-tomed out at -0.9% in January 2016 and has begun a modest
recovery. CHR predicts a rise to +2% IP growth or a fraction more in 2016
Q4 and 2017 Q1, before slowing once again through the rest of 2017. For
copper, that in itself should be enough to confirm a floor to the market
through around 2017 Q1. However, 2% global IP growth is well below the
historical average and MPA would not expect it to be sufficient to trigger
a fully fledged bull market.
Anecdotal information from traders is that a switch has occurred:
previously rallies were being sold into, now dips are being bought into,
instead. Traders tend to be more comfortable trading from the long side
and that seems to be what is happening. Sentiment at the big PDAC
gathering was apparently more buoyant than one might have expected
before the event: people seem to feel that the turn has come. The current
trading range is something like $4,850 -$5,100. Over the coming year,
MPA expects a range to monthly average LME 3 month prices of $4,800
- $5,300. From 2017 Q2, we are wary of possible fresh price weakness
in copper, as two bearish things look like happening simultaneously: (i)
global IP growth is expected to turn down again and (ii) Glencore’s two
mines on the African CopperBelt are due to reopen at 400 ktpy capacity
whereas they shut in 2015 (for modernisation) with 300 ktpy capacity.
MPA’s models show that crude oil prices now have a strong influence on
in-dustrial metals markets. Along with the turn in the global IP growth
cycle, the fact that a bottom also seems to have been put in place in
crude oil has been crucial to the firmer tone to industrial metals. MPA
assumes that the recent oil price floor will hold, but that a ceiling is not
especially far above, as if the price were to go above say $50 / bbl for
long, it would encourage too much production of shale gas, oil’s key
competitor.
However, while the global IP trend does influence oil prices, that market
marches to its own tune. MPA’s customers should consider licensing
MPA’s very user friendly Interactive Price Model for Copper and running
their own scenarios for oil input prices. The Interactive Copper Model is
available for brief free trial licenses.
Enquiries to Adam Sotowicz: [email protected]
March 2016