Connect with us
Our website publishes news, press releases, opinion and advertorials on various financial organizations, products and services which are commissioned from various Companies, Organizations, PR agencies, Bloggers etc. These commissioned articles are commercial in nature. This is not to be considered as financial advice and should be considered only for information purposes. It does not reflect the views or opinion of our website and is not to be considered an endorsement or a recommendation. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third-party websites, affiliate sales networks, and to our advertising partners websites. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish advertised or sponsored articles or links, you may consider all articles or links hosted on our site as a commercial article placement. We will not be responsible for any loss you may suffer as a result of any omission or inaccuracy on the website.

Top Stories

Europe upstages China as main driver for copper outlook

Europe upstages China as main driver for copper outlook 9

By Pratima Desai

LONDON (Reuters) – Shrinking copper demand in Europe due to a manufacturing recession caused by the energy crisis will dominate market sentiment for some time with prices likely to retreat towards two-year lows early next year.

Copper prices typically react to the ebb and flow of demand in China, which accounts for half of global consumption estimated at around 25 million tonnes this year.

But this time the focus is on Europe, accounting for 15%-20% of global demand for copper used in power and construction.

The region is facing surging gas and power prices after energy supply cuts, which Russia blames on Western sanctions over the Ukraine conflict. The European Union has made proposals to impose mandatory targets on member countries to cut power consumption.

“It would be rare to see an outright decline in demand, but I think that’s what we are 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, the combination of which is going to bring 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 COVID lockdowns hit manufacturing activity around the world.

Graphic: LME copper prices:

Europe upstages China as main driver for copper outlook 10

Weak copper demand means surpluses.

Macquarie analysts expect a copper market surplus of 691,000 tonnes in 2023 from a 162,000 tonne deficit this year. They expect global refined copper production at more than 26 million tonnes in 2023.

“The economic outlook ex-China has worsened, particularly in Europe due to the ongoing energy crisis,” said Macquarie analyst Marcus Garvey.

“We do not think China will be able to offset the slowdown elsewhere. Inventories will build next year, but how much will be visible is difficult to say.”

Graphic: Copper market balances:

Europe upstages China as main driver for copper outlook 11

Copper stocks in LME and CME Group registered warehouses and in those monitored by the Shanghai Futures Exchange are visible and total around 189,000 tonnes.

Graphics: Exchange copper inventories:

Europe upstages China as main driver for copper outlook 12

Low stocks in exchange warehouses have supported copper prices, while worries about supplies on the LME have also created a hefty premium for the cash over the three month contract.

Graphic: Premium for LME cash over 3-month contract:

Europe upstages China as main driver for copper outlook 13

Invisible inventories include those held by producers, traders and state stockpiles such as those held by China.

Modelling by Citi analysts shows invisible stocks outside China could total around 500,000 tonnes.

“We see an adequate inventory buffer to bridge the gap between now and a more pronounced demand slowdown as potential recession in Europe plays out over the winter months,” Layton said.

(Reporting by Pratima Desai; editing by Jane Merriman)

Global Banking and Finance Review Awards Nominations 2022
2022 Awards now open. Click Here to Nominate


Newsletters with Secrets & Analysis. Subscribe Now