MPA's Copper Price Forecast

Firmer copper prices for a year or so

For industrial raw materials, bear markets tend to end when the global in-dustrial production (IP) growth cycle bottoms out: a concurrent indicator. The transition from surplus to deficit in individual commodity markets usu-ally happens appreciably later and is a lagging confirming signal. According to CHR's Global IP watch, year-on-year (y-o-y) global IP growth finally bot-tomed out at -0.9% in January 2016 and has begun a modest recovery. CHR predicts a rise to +2% IP growth or a fraction more in 2016 Q4 and 2017 Q1, before slowing once again through the rest of 2017. For copper, that in itself should be enough to confirm a floor to the market through around 2017 Q1. However, 2% global IP growth is well below the historical average and MPA would not expect it to be sufficient to trigger a fully fledged bull market.
Anecdotal information from traders is that a switch has occurred: previously rallies were being sold into, now dips are being bought into, instead. Traders tend to be more comfortable trading from the long side and that seems to be what is happening. Sentiment at the big PDAC gathering was apparently more buoyant than one might have expected before the event: people seem to feel that the turn has come. The current trading range is something like $4,850 -$5,100. Over the coming year, MPA expects a range to monthly average LME 3 month prices of $4,800 – $5,300. From 2017 Q2, we are wary of possible fresh price weakness in copper, as two bearish things look like happening simultaneously: (i) global IP growth is expected to turn down again and (ii) Glencore's two mines on the African CopperBelt are due to reopen at 400 ktpy capacity whereas they shut in 2015 (for modernisation) with 300 ktpy capacity.
MPA's models show that crude oil prices now have a strong influence on in-dustrial metals markets. Along with the turn in the global IP growth cycle, the fact that a bottom also seems to have been put in place in crude oil has been crucial to the firmer tone to industrial metals. MPA assumes that the recent oil price floor will hold, but that a ceiling is not especially far above, as if the price were to go above say $50 / bbl for long, it would encourage too much production of shale gas, oil's key competitor. However, while the global IP trend does influence oil prices, that market marches to its own tune. MPA's customers should consider licensing MPA's very user friendly Interactive Price Model for Copper and running their own scenarios for oil input prices. The Interactive Copper Model is available for brief free trial licenses.

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Disclaimer: Care has been taken to present accurate information. All market forecasts are inherently uncertain: those set out in the charts here represent MPA's assumptions on macro-economic drivers and the modelled response of prices to them. This must be considered by the user alongside other market information, in-cluding on the production cost structure. Neither MPA nor its staff can accept any liability for forecasting uncertainty or error.



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