RPT-Copper analysts reset outlook on China’s dual demand ructions

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(Repeat story published on Thursday without any change in text)

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October 7 (Businesshala) – Copper analysts are reviewing their price forecast for the red metal after simultaneous disruptions in two key sectors in China, which together meet more than half of the country’s copper demand.

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Analysts said the collapse of a major Chinese property developer, which has ignited credit concerns for the construction sector and a shortage of coal, cut power supplies to manufacturers, posing a slowdown for copper in the near term, analysts said. I have piled up.

China is the world’s largest user of copper, accounting for about 50% of global consumption, so changes in its copper market balance have global repercussions.

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Potentially offsetting that downbeat short-term outlook is forecast for stronger copper demand as part of the global energy transition for everything from charging stations to solar plants. Data from consultancy CRU Group shows that globally copper consumption by green energy sectors is expected to increase five-fold over 10 years to 2030.

“Bearish short term, bullish long term is certainly a good way to sum it up. Long term demand dynamics are very good. But short term cyclical demand is clearly a concern,” said BMO Capital Markets managing director Colin Hamilton said.

Benchmark LME three-month copper prices have largely closed in the $9,000-$10,000 per tonne trading range for the past four months, but Hamilton saw them fall around $1,000 a tonne from now on, or more than 10%, due to weakening. I have come. Near-term use in China.

“I’d probably be over $9,000 in the $8,000 camp,” he said.

double whammy

Once China’s best-selling developer, China Evergrande Group is facing the country’s biggest debt restructuring with liabilities of more than $300 billion.

The potential collapse of such a high-profile builder and borrower has raised fears of infection in the rest of China’s vast property sector, a huge copper consumer that could be plagued by any permanent credit crunch.

At the same time, prolonged power restrictions here in China have increased uncertainty about how constrained manufacturing will become, and for how long, factory activity unexpectedly fell in September.

CRU data shows that machinery, air conditioning, fridges and other consumer durables combined account for 42% of China’s copper and construction 22%, while electricity accounts for 22% and transportation 8%.

“Weak construction, credit crunch, Evergrande crisis and power shortage in China are the major constraints for copper prices,” said ANZ analyst Soni Kumari.

Citi analysts recently cut their price forecast for copper from $8,200 a tonne to $8,800 a tonne for the next three months, and from $9,000 to $8,600 a tonne for the first quarter of 2022. .

Buy DIP?

While most analysts agree on a softer near-term demand outlook, some are still waiting for evidence of consumption cuts before adjusting forecasts.

ING analyst Wenyu Yao, referring to China’s October 1-7 Golden, said, “To confirm the idea of ​​demand destruction in copper (by Power Curb), we await more data and evidence once the market returns from holidays.” Gotta do it.” week off.

China’s tight copper inventories are also providing offset to the broader macro picture, limiting market pessimism.

Shanghai Futures Exchange Warehouse Inventory CU-STX-SGH The stock has fallen some 80% since May to its lowest level since June 2009, with “visible” stocks that comprise inventory in the LME. MCUSTX-TOTAL and sugar bonded SMM-CUR-BON Data from Refinitiv Eikon showed warehouses are at record lows.

“What is clear to investors is the stock’s many-year lows in the onshore market that act as part of the subtle positives,” Yao said.

In fact, any near-term volatility in copper prices is likely to be viewed by some as a buying opportunity rather than a sign of permanent market weakness.

ANZ estimates copper will reach $10,000 a tonne by the end of 2021, while ING sees average fourth-quarter prices at $9,200.

“We continue to have strong confidence in the copper super-cycle, and we see copper presenting a strong buying opportunity for medium- to long-term investors over the next 3-6 months,” Citi analysts said.

Reporting by Mai Nguyen in Hanoi; Editing by Gavin Maguire and Richard Pullin

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