Shrinking demand for copper in Europe will dominate sentiment for a while, with prices likely to fall back to a two-year low early next year as the energy crisis causes manufacturing to slump.
Copper prices typically respond to ups and downs in demand from China, which accounts for about half of this year’s estimated global consumption of about 25 million tonnes.
But this time the focus is on Europe, which accounts for 15% to 20% of global copper demand for electricity and buildings.
The region is facing soaring gas and electricity prices after energy supplies dwindled. The EU has proposed to impose mandatory targets on member states to reduce electricity consumption.
“It’s rare for an outright drop in demand, but I think that’s what we’re going to see in Europe over the next 3-6 months,” said Citi analyst Max Layton.
“There will be a very substantial seasonal surplus between December and March 2023, and the combination of these factors will push copper down to $6,600.”
Benchmark copper prices on the London Metal Exchange (LME) fell to $6,955 a tonne in July, the lowest since November 2020, when coronavirus lockdowns hit global manufacturing activity.
Analysts at Macquarie expect the copper market to have a surplus of 691,000 tonnes in 2023, compared with a deficit of 162,000 tonnes this year. Global refined copper production is expected to exceed 26 million tonnes in 2023.
“The economic outlook outside China has deteriorated due to the ongoing energy crisis, especially in Europe. We do not think the stability and growth of the Chinese market will offset the slowdown in other markets. Inventories will increase next year, but how much is hard to predict. “
Copper inventories in LME and CME Group-registered warehouses, as well as warehouses monitored by the Shanghai Futures Exchange, total about 189,000 tonnes.
Copper prices were supported by low inventories in exchange warehouses, while concerns over LME supplies also created a large cash premium for the three-month contract.