ING GROEP N.V. 
Analysts have positive views on potential upside for the copper price based on recent news out of
-Copper prices at the beginning of an upside run, according to market analysts
-Chinese smelter agreement a key supply side catalyst, says
-Underlying copper market fundamentals are also positive
-Copper price forecasts and stock picks
Copper's bull run is only just beginning, according to
In a rare agreement among Chinese copper smelters, production will be jointly cut (according to recent media reports) to cope with shortages of raw material.
While this broker acknowledges views are mixed on what a sharp decline in Chinese treatment and refining charges means for the copper price, the speed and magnitude of the decline likely reflects disruption to mine supply and depletion of concentrate inventory, resulting in panic buying in the spot market.
Spot prices for treatment and refining are now at record lows, down more than -80% since the beginning of the year.
As smelter capacity additions have been in the pipeline for a long time,
Should overcapacity in smelting be the reason for these lower treatment charges, the analysts note the outcome wouldn't necessarily be bullish for the copper price.
If enough copper units (concentrate and scrap) are available, capacity additions would typically result in a lift in total refined output, explains
Prior to the Chinese smelter news
Prior to the news on treatment and refining charges,
Earlier in March, the broker noted material downgrades to 2024 mine production guidance since the beginning of the year. While this suggested limited supply growth, copper price upside had been capped by weak physical markets due to strong refined output and lacklustre demand.
These conditions had created a buying opportunity, according to the analysts, given the (now correct) expectation refined supply would come under pressure in the near-term due to shortages of concentrate, and because traditional drivers of copper demand would improve, supported by restocking.
Back in late-February,
The bank then forecast the beginning of an interest rate easing cycle in the third quarter of 2024 would create tailwinds for commodity markets in the second half of the year.
Moreover, ANZ suggested unplanned disruptions in supply would likely remain high as producers struggle with high costs and falling quality issues. Ongoing political risks were also considered high, putting new mine development at risk.
Despite the economic backdrop casting a shadow over base metals markets, the bank highlighted underlying fundamental indicators were indicating copper's physical market was not seeing any weakness.
The big picture for copper
Copper is one of the most important base metals, in
The bank highlighted figures from the
Demand for copper will be further helped by an acceleration in the energy transition, noted ANZ, with annual installed photovoltaic capacity reaching a record high in 2023.
Copper is very ductile and a good conductor of electricity and heat, making it an excellent material for wiring, electrical cabling and electrical generators.
Despite growth slowing for electric vehicles (EVs) globally, sales are still headed for another record year in 2024, and the bank noted increasing usage will drive copper demand higher.
The metal is a key component used in electric motors, batteries and wiring, as well as charging stations.
Importantly, copper has no substitute for its use in EVs, wind and solar energy, highlights ING, and its appeal to investors as a key green metal should support higher prices over the next few years.
Last year's rising demand for renewables and EVs in
ING also believes an improvement in the ailing property sector in
Forecasts
ING points out microeconomic dynamics are starting to look more constructive for copper amid a tightening supply outlook, while the demand is expected to slowly improve in 2024, especially via the green energy sector.
For the short term, the bank suggests upside to copper prices might be capped by macroeconomic drivers, including ongoing demand concerns in
Copper prices will rise to
While prices will peak in the fourth quarter at
The probability is low for a strong rebound in mine supply of more than 5% in 2025, according to the analysts, and if/when the market moves into deficit in the second half of 2024, tightness is likely to persist for an extended period.
Latest supply-side developments give the broker conviction physical tightness will emerge when demand recovers.
A pick-up in demand will be needed to tighten a currently weak physical market. Rate cuts triggering restocking in
More supportive macroeconomic data out of
Just last week, Macquarie increased its 2024 and 2025 forecasts for copper by 11% and 4%, respectively, driven by supply shortages against a relatively robust demand backdrop. The long-term price estimate was also increased by 1% to
For 2024, Macquarie notes its forecast of
Stock picks
Outperform-rated Sandfire Resources ((SFR)) is Macquarie's key copper producer pick with the Motheo operations in
The company has a strong organic growth pipeline, notes the analyst, with copper production increasing to around 107kt in FY25 from 84kt.
From among
This broker points to a valuation disconnect between current equity trading for copper companies on the ASX and recent transactions multiples. It's thought investors will benefit as the disconnect unwinds and the appetite for small cap exposures improves.
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