New York — It could take a number of years for copper demand to return to pre-coronavirus pandemic levels, with only government stimulus packages acting as any real demand support, according to brokerage Sucden.
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In the face of the continued pandemic, and resulting country lockdowns, copper has been hit by headwinds and tailwinds at the same time. On one side producers have halted production, adding some support, yet on the other hand demand has dried up as the world hunkers down to prevent further spread and save lives.
Sucden's head of research Geordie Wilkes noted that copper demand has been severely hampered by the coronavirus as unemployment increases and demand for goods and services declines.
"It could take years for demand to get to pre-pandemic levels," Wilkes said in a report published late Friday. He pointed out that in the near-term there could be some price support as countries slowly come out of lockdown and switch back on, but it is likely this will be crimped going forward as a barrage of negative economic data continues to filter through.
Sucden is forecasting a price range of $4,800-$5,500/mt in 2020.
The London Metal Exchange copper price is currently trading around $5,100/mt, having touched three-year lows of $4,371/mt mid-March after starting the year at $6,188.50/mt.
Speaking to S&P Global Platts recently, LME's CEO Matthew Chamberlain said that copper was being torn by a cut in production, as the world closes shop to slow the coronavirus pandemic, and also a downturn in demand.
The world is looking at a fairly deep recession ahead, although it is unclear how long a pullback could last and how much damage it could inflict on the global economy.
Earlier in April Jeff Currie, global head of commodities research at Goldman Sachs, told S&P Global Platts that he was cautious of any copper rally and that the bank's view is there is likely to be another test of recent lows towards $4,000/mt.
During a conference call, Sucden's Wilkes told Platts that the broker is expecting a global recession.
He accepted in such unprecedented times it is difficult to get a handle on anything, accurately.
He said that most of the copper supply-side disruption has been in key production nations such as Chile in South America. He noted that how well supported the copper price will be from a supply perspective depends on how quickly mines come back online.
"The longer-term trend will be set out by A. how the world comes out of lockdown and B. how far behind the [pandemic] curve are producing nations such as Latin America," he said.
Wilkes added that demand support will come in the form of infrastructure stimulus from the world's largest consumer China, although he said there is still not enough clarity behind what China's stimulus plans really are to have a firm gauge on price direction.