Goldman Sachs, Trafigura See Copper Price Skyrocketing to All-Time High, Citing Stocking Out

At the CESCO Week held in Chile, participants were very bullish over copper prices. Goldman Sachs expects that copper prices will surge, setting its target price for LME copper futures at $11,000/mt for the next 12 months. Commodity giant Trafigura prices expects to copper hit record high later this year.

This year, LME copper prices have remained in the range of $8,500-9,500/mt. The market believes that the reason why copper prices have not been strengthened is related to the sharp decrease in China's copper imports in the first quarter.

According to the latest data from the General Administration of Customs, China's import of unwrought copper and copper semis in January 2023 was 469,928 mt, a decrease of 8.58% month-on-month and 7.8% year-on-year. The import of those products saw a month-on-month decrease of 12.86% and a year-on-year decrease of 10.9% in February and stood at 409,514 mt. In March, imports of unwrought copper and copper semis were 408,174 mt, a month-on- month decrease of 0.3% and a year-on-year decrease of 19.0%. From January to March, the total imports of these cargoes were 1,287,613 mt, a cumulative drop of 12.3% year-on-year.

SMM believes that the main reasons for the decrease in copper imports in the first quarter are: 1) The import saw losses of 1600 yuan/mt to profits of 45 yuan/mt profit from the end of 2022 to January-February 2023. Import losses led to a decrease in import volume. 2) After the pandemic control was lifted in January, a large area of the country was infected. Meanwhile, plants halted production longer for Chinese New Year holidays, lowering the overall orders. Therefore, the import volume also decreased accordingly. 3) After 2023, copper prices remained high, and that suppressed downstream purchasing sentiment. This led to continuous inventory accumulation.

According to SMM analysis, imports of unwrought copper and copper semis are expected to increase slightly in April. The main reason is that the outbreak of the overseas banking crisis in mid-March led to a sharp drop in copper prices, which stimulated a short- Term rapid recovery of downstream consumption.

Goldman Sachs said the copper market will be prone to stocking out if Chinese copper imports resumed, warning that global visible inventories could run out by the end of the year. 

At present, many copper producers are still worried about maintaining production. According to the International Copper Study Group, global copper ore production was 21.8 million mt in 2022, an increase of only 1 million mt over the previous three years. Copper file production in Chile 5.3% last year, according to Cochilco.

HP Solutions estimates that copper mine production in Chile could be around 5.7 million mt in 2023, the same as in 2020.

McKinsey predicts a copper deficit of 6.5 million mt in the next decade due to rising demand and falling supply.

The chief executive of Antofagasta, an Antofagasta mining company in Chile, said that the copper market is expected to be volatile this year and there will be a slight shortage of supply. Any unexpected production shocks will push up copper prices.