Copper set to take off, Citi says As copper hits 14-month highs, Citi has an urgent message for consumers and investors: buy now or pay the price of cost increases and missed opportunities in a new secular bull market. Copper’s first secular bull market this century was led by China’s urbanization and industrialisation. In the early 2000’s the commodity shot up from $US1,600 to $US8,800 a tonne in just three years. Citi says such explosive price gains may also be possible over the next few years if a cyclical recovery adds to the bullish long-term forces that it has identified. Those forces include decarbonisation-related demand growth – from the switch to renewable energy sources, electric vehicles and grid expansion – as well as the rise of artificial intelligence and data centre expansion, according to Citi’s Global Head of Commodities, Max Layton. Known as “Dr Copper” for its ability to predict economic cycles, the commodity ended a damaging four-month bear market in July 2022, bouncing 30 per cent over the six months to January 2023. After rising 19 per cent since early October 2023 when it started to take off along with gold, copper is close to breaking above its January 2023 peak at $US9,550 a tonne. In its quarterly outlook last month, Citi said copper’s second secular bull market this century was taking hold, 20 years after China urbanization and industrialization-led secular bull market. That bull market was muted by cyclical weakness in the past 18 months. However, the JP Morgan Global Manufacturing PMI has recently signalled an expansion. This week Mr Layton revised up his short-term price forecast to $US9,700 from $US9,200 a tonne. His base case has copper averaging $US10,000 a tonne by the December quarter and $US12,000 a tonne in 2026. His base case assumes only a small uptick in cyclical demand growth over 2025-26. But his bull case has copper rising more than two-thirds of its current value, to over $US15,000. “Explosive price upside is possible over the next two-to-three years too, if a strong cyclical recovery occurs at any time,” Mr Layton said. He says cyclical weakness staved off this bull market for the last 18 months, but this headwind is fading with improving manufacturing indicators in the US and China hinting at a turn in the manufacturing cycle, and looming central bank rate set to guard against a downturn. In his view an upturn in the global manufacturing cycle combined with secular demand growth drivers should easily see copper register deficits in supply versus demand. Energy transition demand alone is driving an uptrend in total copper consumption according to Citi. AI and a cyclical upturn in the global manufacturing cycle would be “kickers” that could cause a total deficit of 1 million tonnes over the next three years, requiring higher prices to balance the market. “We strongly recommend corporate consumers hedge their copper exposures over the next three years, and or consider maximising their hedging levels into this secular bull market,” Layton said. “We find that copper’s second secular bull market may cost unhedged consumers such as automakers, developers, and power companies up to about $US320bn over the next three years,” Mr Layton said. “We think the stars are aligning for the copper bull story.” Structural decarbonisation and data centre demand growth, mine supply constraints in 2024, and a more resilient-than-expected cyclical demand growth outlook are set to cause annual supply deficits of about 300,000 tonnes over the next three years. “Investors have added to bullish copper positions in response to both these fundamental themes as a proxy to express belief in a manufacturing sector rebound and resilient global growth narrative,” Mr Layton added. “Elevated investor net long positioning in copper does present an eventual pullback vulnerability but there is no guarantee prices will retreat to lower levels, so we prefer to stay bullish in line with momentum and our medium-term price trajectory.” His cumulative forecast deficit of about 1 million tonnes at $U9,000 a tonne price levels exceeds global visible copper inventories of about 860,000 tonnes. China State Reserve Bureau true stock levels remain a key unknown, but he doesn’t expect a meaningful release of inventory from this source below his medium-term $12,000 price target. Speculator participation is the significant difference between now and the early 2000s, so copper could see a bull market fuelled by financial flows even without physical market buying initially. “The market today is much more forward-looking, and investor conviction in the future emergence of physical shortages is enough alone to send prices soaring,” Layton said. “The actual realisation of demand strength, physical shortages, and or inventory drawdowns is not necessary as an initial catalyst, although it will need to be realised eventually to validate and sustain higher prices following such a rally. “We are already seeing this materialise in copper through investor inflows in response to the various structural and cyclical tailwinds.” He also warns that a repeat of the “stock-out” inventory lows of the early 2000s could fuel a much sharper and extreme scarcity-driven price rally, pushing prices as high as $15,000 by 2026. “The early 2000s saw prices initially double between ‘02- ‘04 during a rapid 1 million tonne drawdown in visible inventories, before further tripling over ’05 and ‘06 as prices climbed to demand destruction levels,” he said. “Total refined copper demand grew 15 per cent during ’03 and ’04, which was too rapid for marginal scrap supply to adjust. “If we see an earlier and stronger cyclical demand recovery this could drive copper demand well above trend and potentially faster than the scrap market’s pace of potential response.” The AI boom could worsen an existing supply-demand imbalance, pushing prices higher, analysts at Swiss commodity trading house Trafigura said at a US conference on Monday. “We’re adding even more sources of demand,” Saad Rahim, chief economist at Trafigura said. “First it was the energy transition, now also data centres and AI. That growth has suddenly exploded.”
NWC Price at posting:
4.6¢ Sentiment: Buy Disclosure: Held
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