Ground Breakers: Can copper really be the new oil?

Two years ago, Goldman Sachs called copper the ‘new oil’
But prices have stagnated and fallen since hitting an all time high in May 2021
The jury is out on whether the copper market will be oversupplied in 2024 amid a weakening Chinese property market

We’re more than two years on from Goldman Sachs’ call that copper will be the new oil in the green energy transition.

Since then prices have been volatile — wallpaper used by companies sensitive to the fears of investors for ‘have gone down’ — but have continued to threaten a breakout when the global economy turns around from 2023’s rate rise nightmare.

Having topped out at US$10,700/t in May and then October 2021, the red metal is now fetching a little under US$8700/t for three month delivery on the LME.

At the moment the last prediction out of the International Copper Study Group was that a small deficit of 27,000t in 2023 would transform into a 467,000t surplus in 2024 as mined supply outpaces demand growth, the largest surplus in 10 years.

Its figures for 2023 to date show a deficit of some 51,000t, though supply challenges including the forced closure of First Quantum’s Cobre Panama mine in the Latin American country of the same name and lower production forecasts from Anglo American have given hope the market won’t be flooded in 2024.

Goldman Sachs now sees a deficit of over 500,000t in 2024, and is expecting a price uptick in the second half.

Others aren’t as bullish in the short term.

ING sees a ‘comfortable balance’ in 2024, keeping a price outlook of US$8450/t.

But among the toughest critics is Martin Pradier, Veritas Investment Research materials sector analyst, who told Bloomberg the downturn in China’s residential real estate industry would continue to hurt copper prices.

“If you look at the last 25 years, there was no growth for copper outside of China,” he told BNN Bloomberg’s Andrew Bell in a recent interview.

“Out of that, China’s real estate accounts for about 25% to 30%. China’s consumption is eight times bigger than the U.S.”

The canary in the coal mine for the demand and supply balance, he said, was the fact copper producer costs had outpaced price increases by 16% to 3% this year.

“It shows you that copper was in a surplus situation because in any other market if your costs are going up 16% you try to pass that (on),” he said.

“When you see that big difference between the cost and the price, that is telling you something.

“In general I’m negative. I think it will take next year, maybe another year more at least (for copper to turn around) because the importance of China is so big.

“China was building half of the houses of the world one or two years ago … as that slows down obviously copper demand is going to slow down.”

READ: Ground Breakers: Bloomberg says we’ll be starving for 6Mt of copper by 2032, but a supply glut now could make things tricky

And on the markets?

Whatever 2024 has in store, investors continue to be bullish on the mining sector in the here and now.

Materials stocks are now up over 10% for the past month and are one of the top performing sectors in the ASX 200 over that time, with the sector containing the big large cap ressie names up almost 1% again this morning.

Fortescue (ASX:FMG) has bounded to a new all time high of $29.11 this morning to lead the movements, with Mineral Resources (ASX:MIN) and Newmont (ASX:NEM) also in the winner’s circle.

The ASX’s top copper exposure Sandfire Resources (ASX:SFR) is also up strongly and now boasts a 33% YTD rise despite relative timidity in copper prices.

It has become the sole pure play copper stock of scale on the ASX in 2023 with OZ Minerals bought out by BHP and 29Metals (ASX:29M) suffering from major production challenges.