Pittsburgh — Copper prices in 2020 are expected to suffer from ongoing macroeconomic concerns and weak market sentiment as a result of sustained trade tensions between the US and China, analysts at Fitch Solutions said in a report Tuesday.
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Fitch forecast copper prices to average $5,700/mt in 2020, down from $6,000/mt in 2019, citing recent sideways trading between $5,800/mt and $6,000/mt that has fluctuated based on political developments.
"An announcement in early November that the US and China were working towards a 'phase one' trade deal pushed prices slightly higher, before renewed threat of additional tariffs on China by US President Donald Trump then did away with any momentum gained," Fitch said.
"More recently the US Senate's passing of the 'Hong Kong Human Rights and Democracy Act' on November 19 put downward pressure on prices, before positive rhetoric from Donald Trump on the potential for progress on trade talks in early December once again pushed prices higher."
The company said a significant trade deal between the two countries will likely be delayed until after the 2020 US presidential elections, stoking further market uncertainty and pressure on copper prices.
In addition to US-China trade tensions, fears of a global economic recession are expected to hurt overall metals pricing.
"Lingering fears of the global economy falling into recession over the coming months will continue to house poor sentiment for metals, which should keep a lid on prices," Fitch said. "Non-commercial net speculative positioning for copper remains firmly in bearish territory, with most participants holding short positions."
TRADE DISPUTE HURTS CHINA DEMAND
Key metal-intensive segments in China are expected to continue stagnant trends as the country's economic growth slows from the international trade dispute, Fitch said.
Fitch revised China's 2019 real GDP growth forecast down to 6.1% from 6.3% and expects GDP to fall to 5.9% in 2020. The slow growth is attributable to the nation's poorly performing automobile, electrical and machinery industries.
"Over 2020, we forecast vehicle production and sales growth in China to remain stagnant while demand from the power sector will also slow," Fitch said. "As a result, we expect demand for a number of metals used in these sectors, primarily aluminum and copper, to remain weak."
In the automotive sector, copper is especially crucial to electric vehicle production. Electric vehicle engines utilize roughly four times the amount of copper contained in conventional internal combustion engines, according to the Fitch report. But China's new energy vehicle sales in November fell 41.7% year over year, according to recent data released by the China Passenger Car Association.
As Chinese copper consumption struggles, Fitch forecasts a 36,600 mt copper market surplus in 2020, up from 15,300 mt in 2019.
PRICE RECOVERY POSSIBLE AFTER 2021
Fitch expects global copper production to slow down to keep the market in undersupply through 2027 as consumption growth levels decline over the next 10 years.
The undersupply will create a deficit in the copper market beyond 2021 that should stimulate price recovery up to 2023, Fitch said.
Meanwhile, China's expanding power and construction sectors will still support copper demand despite the country's slower GDP growth, according to the Fitch report. China's power industry accounts for 45% of domestic copper end-use, and the construction industry accounts for 10% of domestic copper end-use, Fitch said.
"China will continue to drive global consumption over the coming years as the country is by far the largest consumer of refined copper," Fitch said.
China accounted for 51% of world refined copper usage in 2018, according to data released Monday by the International Copper Study Group.
Fitch said long-term copper outlook after 2021 may also be supported by demand growth in India, increased electric vehicle production, and demand in the renewable energy industry.
-- Nick Lazzaro, firstname.lastname@example.org
-- Edited by Bill Montgomery, email@example.com