SINGAPORE: Tight supply could mean a strong rally in copper prices is likely to continue in the second half of 2020, but downside risks are also rising, speakers at the HKEX Commodities Forum said on Thursday.
Benchmark three-month copper on the London Metal Exchange hit a 25-month-high at $6,633 a tonne this week, erasing all losses caused by the coronavirus pandemic and the prolonged U.S.-China trade war combined.
Prices have been supported by a recovery in top consumer China, supply tightness and cheap and abundant liquidity fuelled by global stimulus programmes.
“In Q3, we believe copper price will peak at around $7,000,” said Yang Changhua, chief copper expert at research house Antaike.
“But when prices rise a lot, accumulated risks also increase. After the pandemic is under control in producing countries, the rally will be contained and prices will gradually fall,” Yang said.
A poll conducted at the forum showed 58% of participants chose copper as the metal with the biggest upside potential in the second half of 2020. Only 16% picked aluminium and 11% bet on nickel, while lead, zinc and tin were all below 10%.
“Anyone holding physical copper inventory today is certainly holding on to it,” said Ian Roper, a general manager at Shanghai Metals Market.
“But just how much of that visible inventory draw was driven by end-users…, we’re not quite sure. If sentiment on macro turns more bearish… prices (could) reverse just as quickly as they have risen,” he added.
Meanwhile, analyst Sifang Liu at consultancy Wood Mackenzie said copper mine growth in the next few years “will be plentiful”.
Concentrate supply will be back to normal levels by the end of the year, said Harry Jiang, a trading manager at Jinchuanmaike Metal Resources Co. Ltd.
“We see copper price level at $6,000-$6,500 unless there are major supply disruptions,” Jiang said.
On Wednesday, a Reuters poll of 20 analysts showed the LME cash copper price was expected to average $6,173 a tonne in the fourth quarter, down 5% from Tuesday’s closing price.