Copper Price Update: Q2 2023 in Review

Copper prices have been performing with volatility since the start of the year.

Staying above the US$8,000 per metric ton (MT) mark for most of the first half of 2023, the red metal reached its year-to-date high of US$9,356 on January 23. But copper has been unable to maintain that level, falling back to almost where it started the year.

How did copper prices perform in Q2?

Copper prices kicked off the second quarter of the year trading at US$8,917, but soon began to fall.

Copper’s price performance in Q2 2023.

Chart via the London Metal Exchange.

The highest point of the quarter came on April 13, when copper was changing hands for U$9,058.50. Since then, prices have been unable to go back to the US$9,000 level, plummeting all the way down to US$7,901.50 — the lowest point of the quarter.

“(The) copper price, as a global market’s barometer, usually increases during economic expansion times and decreases with lower industrial activity,” he said. “After the zero-COVID policies finished in China, optimism reigned, but the Chinese Purchasing Managers Index contracted in April … while in other parts of the world inflation proved to be a bigger challenge than originally imagined, and a general stagnation of the economy was becoming clearer.”

All in all, copper prices ended the three month period at US$8,315.50, down by more than US$600. That left the red metal almost flat since the start of the year.

Copper supply and demand dynamics in 2023

Copper is widely used in building construction, electrical grids, electronic products, transportation equipment and home appliances. But demand from top consumer China has been weaker than expected, and the global macroeconomic outlook has also put the red metal under pressure.

Electric vehicles use about four times more copper than internal combustion engine cars, according to the International Copper Study Group. Copper is needed for the batteries, windings and rotors used in electric motors, wiring, busbars and charging infrastructure.

Additionally, air conditioner production, which accounts for about 10 percent of Chinese copper demand, is up 10 percent year-on-year. Domestic sales have been very strong even with the apparent weakness in the property sector, according to CRU data.

“Regarding China, there’s a growing voice of a broader stimulus package, which is expected to support currently troubled sectors, such as real estate and small- to medium-scale industries, that might help boost domestic demand,” Refinitiv’s Gay said.

In the rest of the world demand is slowing as expected.

“Especially in Europe — I would say there’s limited recovery expected for the second half, if at all,” Edwards said. “There are some pockets of demand strength, such as India, but it is still a small market.”

For Gay, the US and Eurozone’s ongoing battle against inflation is weighing on demand.

“Although some promising results are starting to be seen in some countries, it seems unlikely that industrial activity will pick up shortly,” he said. “The war in Ukraine is also factoring down, as it brings a certain uncertainty level to the market.”

Supply on the other hand was hit during the first few months of the year.

“The first two months of the year, production was quite heavily disrupted, especially with protests at mines in Peru, but subsequently many of the issues have been resolved and mine side is performing reasonably well in aggregate,” Edwards said.

Chile is the world’s largest copper producer, putting out 5.2 million MT of copper in 2022, while Peru comes in second at 2.2 million MT, together with the Democratic Republic of Congo. “We were looking at a deficit (for 2023), but the market is probably now much closer to balanced, if not edging into surplus,” Edwards said.

Refinitiv data shows that during the first months of the year the refined copper balance was at a deficit of around 77,000 MT. “Considering current variables and an improving economic sentiment for the second half of the year, we estimate a surplus circa 80,000 tonnes at the end of 2023,” Gay said.

Looking at the long term, copper is facing a potential supply shortage before the end of the decade, with juniors and producers facing hurdles to bring new supply online.

For Edwards, some of the challenges for miners today include the willingness of shareholders of listed mining companies to support board approvals of major capital expenditures. “(There’s also) rising capital costs with increased uncertainty, and (there are) still challenging operating conditions in some countries,” he added.

Gay agreed, saying the most complex factor for the mining industry at the moment is the high level of uncertainty and lack of long-term policies regarding the mining industry in top-producing countries, mainly Chile and Peru.

“This has eroded the investor’s trust and possibly slowed down some necessary investments in the region,” he said. “Aging mines and depleting resources might act as a ticking bomb that will be harder to disarm as time passes by.”

The analyst also pointed to the need for miners to do extra work on engagement with communities to secure long-term relationships and minimize disruption risks.

“The mining industry needs to continue changing its image from an extractive-only industry to a value-creating industry,” he said. “It is my belief that the social license is one of the top challenges copper mining is facing and will remain facing in the near future.”

What’s ahead for the copper market in 2023?

For copper-focused investors, there are few catalysts that could impact the sector as the year continues to unfold.

In the short term, Edwards said there are still potential headwinds from macroeconomic factors, such as China’s recovery and the US’ inflation narrative. Another important factor to consider is low London Metal Exchange copper stocks, which as of July 4, stood at 67,200 MT.

“Most of it (is) unwarranted, meaning that companies can retrieve them at any time,” Gay said. “Low stocks are usually, but not always, a bullish sign for copper prices, although several other factors weigh in.”

In terms of prices, CRU sees levels relatively rangebound in Q3, averaging around US$8,500.

July is set to be a month with key catalysts in the US, where the Federal Reserve will meet to discuss its interest rate policy, and China, where the decision-making body Politburo is expected to make stimulus announcements.

“Depending on the results and scope of these meetings, the copper price might experience a boost and could breach US$9,000, although the current state of the market seems to lack impulse to contain these psychological barriers for a long time,” Gay said.

For FocusEconomics analysts, prices are seen remaining close to current levels in the coming quarters.

“The health of the Chinese industrial sector and prospective stimulus policies in the country are the main factors to monitor on the demand side,” they said in their latest report. “Supply-wise, adverse weather conditions and labor unrest at mines in Chile and Peru, as well as possible sanctions against Russian copper, pose upside risks.”

Panelists polled by the firm see copper averaging US$8,341 in Q4 2023 and US$8,426 in Q4 2024.

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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