Copper Market Deficit

Thoughts from one of the investment banks ....

China's return from the LNY holiday has heralded a burst of onshore investor copper buying after the holiday season with limited inventory builds evident so far. This latter trend during a period of what should be peak surplus generation onshore, has particularly bullish implications given that the market is now on the cusp of the tightest phase in what we expect to be the largest deficit in a decade. The very low starting point for inventories at the beginning of this year has been further exacerbated by a counter seasonal stock draw so far in Q1 on a scale only seen once before in recent history (in 2004). These trends point towards a high risk of scarcity conditions over the coming months. In this context, the fundamental outlook for copper remains extremely bullish with no evidence that current price levels are yet stimulating softening effects to reverse both spot and forward fundamental tightening trends. We continue to forecast the largest deficit in 10 years in 2021 (327kt), followed by an open-ended phase of deficits as peak copper supply (2023/24) and a record 10-year supply gap on the horizon. To reflect the rising probability of scarcity pricing our new 3/6/12M copper targets increase to $9,200/$9,800/$10,500/t (from $8,500/9,000/10,000/t previously).