Goldman and Bank of America see copper soaring to record highs

Published Sun, Dec 11 20229:42 PM EST

Goldman Sachs and Bank of America say copper could hit record highs in the coming year, as short-term supply tightness and long-term energy transition-related demand push the red metal north. Three-month copper futures on the London Metal Exchange were trading around $8,525 per metric ton on Friday in Europe. It comes after the metal posted its strongest month since April 2021 in November on hopes of a demand boost if China eases its zero-Covid policies. LME copper prices peaked at over $10,600/t in March this year, but two of Wall Street's biggest names see further price rises ahead. Goldman last week hiked its 12-month forecast for the metal to $11,000/t from $9,000/t. It also upgraded its average price forecast to $9,750/t for next year and $12,000/t in 2024. The bank said the expected surplus, which had weighed on prices, had not materialized and was unlikely to. Forecasting low stocks into 2023, "we think that another deficit in the market next year will take fundamental conditions to an unprecedented extreme in terms of tightness," Goldman analysts led by Nicholas Snowdon said in a research note on Dec. 6. They added that, as China relaxes its zero-Covid restrictions and starts to reopen, restocking is set to play out. "If China were to return its copper stock to consumption ratio to pre-2020 levels, that would imply as much as a 500kt boost to physical demand," the analysts added. Bank of America, meanwhile, has a $10,000 price forecast for the fourth quarter of 2023 — and said that if the right set of circumstances came together, it could hit $12,000/t next year. Such a scenario would require a pivot by the U.S. Federal Reserve toward less aggressive monetary policy tightening, limiting upside in the U.S. dollar , and demand to remain supported as the planned energy transition accelerates. Both Goldman and Bank of America highlighted the energy transition as a key driver of copper markets looking ahead. Copper is a critical component in electric vehicles, used in batteries, wiring, charging points and more. It's also used in batteries for energy storage, as well as in generating wind and solar power. "We see green transition related demand growing by 3% (42kt) in Europe and 17% (92kt) in the U.S., offsetting 53% of the cyclical sector slowdown," Goldman's Snowden said. While Bank of America's Michael Widmer said: "Copper is set to rally as usage in green technologies should offset cyclical demand weakness." "Beyond support from the energy transition on the demand side, copper markets have also remained tight because supply disruptions have become more pronounced," he added in a note on Nov. 20. Widmer pointed to Chile and Peru, where low ore grades, droughts and blockages have contributed to capping production. "Feedback from LME Week suggests these output losses have reduced next year's consensus market surplus from around 1Mt to 300Kt at present. In short: markets keep overestimating supply additions," he concluded. — CNBC's Weizhen Tan contributed to this report.