After the slump in global copper prices, a buying spree is brewing, a Citi commodity analyst has forecast.
Copper prices slid to the lowest in six months earlier in June in response to news about Germany slipping into a recession and China's manufacturing activity shrinking instead of expanding in May.
The pessimistic mood on the copper market has only been deepening in recent weeks under the weight of bearish economic data from these key markets and the U.S. Yet, according to Max Layton, Citi's managing director of commodities research, sentiment is about to change.
It's all because of the energy transition, Layton told Bloomberg this week. Investors who want to jump on that bandwagon would want exposure to copper and the moment the clouds clear for the global economy, they'll be scrambling to buy copper.
Others will be buying, too, driving sustained demand growth: utilities and carmakers were two import buyers, according to Layton. The basis for the prediction is the switch to wind and solar, which require a lot of copper, especially wind, and EVs, which contain times more copper than internal combustion engine cars.
"If you want to put on a decarbonization trade in commodities, the only truly liquid commodity is copper, and it's the most liquid by a country mile," Layton told Bloomberg. "Copper's unique characteristics mean that it could make oil's 2008 bull run look like child's play."
Commodity majors such as Glencore and Trafigura have been warning about a coming shortage of copper, because of the expected surge in demand driven by energy transition efforts.
"There's a huge deficit coming in copper, and as much as people write about it, the price is not yet reflecting it," Glencore's chief executive Gary Nagle told analysts last December.
Trafigura's co-head of metals and minerals, Kostas Bintas, meanwhile, forecast that copper prices will surge to over $10,000 per ton over the net 12 months and maybe even reach $12,000 because of the gap between demand and supply.
By Irina Slav for Oilprice.com
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