“If you’re a copper bull, then this has been a great start to 2023: the metal’s price is now up 20% from October-lows,” broker Liberum told its client base this morning in a lengthy note.
Liberum cited the fading of two bearish macro-policies: the ongoing US Fed rate hikes and China’s ‘zero covid’ policies.
It refers to the price movement over the past month or two as a “reflation trade.”
There could yet be some slowing of the pace, however.
“While we expect fundamental support to emerge when China gets back from its Lunar holidays in early February, buyers there will probably continue to be deterred by copper’s speculative-buoyed price,” the broker noted.
What’s more, it’s not just copper that’s been strong. Most industrial and precious metal prices are up on a moderating US rate hike cycle and the easing of China’s lockdown measures.
Looking a little further out, then, Liberum takes a bearish view, but favours Glencore over Antofagasta. For Glencore it sets a target price of 670p, while for Antofagasta, which it rates a “sell” it sets a target of 930p.
“We remain copper bears,” the broker said, “expecting the US Fed’s ongoing inflation-targeting cash rate policy, mirrored by other central banks, to cap speculator-led upside price risk, while deferred physical demand, itself partly a response to the rally, to drag on metal’s longer-term outlook.”
Liberum’s thinking is that passing speculator interest and subdued metal demand should take copper’s price to below US$7,000 per tonne by the second half of 2023.
At that point though, there may be a stabilisation.
“We do not forecast a US recession: copper’s price can return to its pre-virus levels without such a macro-event occurring,” the broker added.
“Copper’s longer-term fundamentals, beyond 2023, are price-supportive.”
In particular, mine supply growth is weak, China has an ongoing high dependency on imports and is competing increasingly with demand from the rest of the world. There will also be demand from government-backed drives towards putting more electric vehicles on the world’s roads.