On Tuesday, commodity analysts at CIBC announced that they upgraded their copper forecasts for this year and next. The bank added that the copper mining space is significantly undervalued compared to the commodity.
In the report, the bank said that they see copper prices rising to $5.25 a pound in the fourth quarter of this year into the first quarter of 2022. For the year the analysts said that they see copper prices averaging the year around $4.62 a pound rising to $4.75 a pound by 2022.
“Our revised estimates are now 22% and 32% above 2021E and 2022E consensus estimates, respectively,” the analysts said.
Over the long-term, the bank sees copper prices averaging $3.30 a pound.
The analysts said that they remain bullish on copper as the market continues to see a significant supply and demand imbalance as demand is expected to rise amidst a growing supply crunch.
“As vaccines continue to roll out, we view a global economic recovery, additional government stimulus, and rising inflation expectations as positive momentum drivers for base metals,” the analysts said in the report.
“The key drivers supporting copper fundamentals remain in place. In our view, and on the demand front, these supporting factors include positive economic data, USD weakness, continued Chinese demand, and tight global inventory levels,” the analysts said. “Copper supply remains at risk from further COVID-19-related curtailments, and we note upcoming election results later this year, in Peru and Chile, the two most significant copper producing countries, have potential for increases to mining taxes and royalties, which can have longer-term impacts for mining investment.”
Looking at the demand side, CIBC expects copper demand to jump 5.6% this year compared to 2020. Looking past the pandemic effects on global growth, the analysts said that demand is expected to remain around 3% through 2024. The report noted that more than half the demand is expected to come from China.
Although the latest speculative trade data from the Commodities Futures Trading Commission shows hedge funds lower their exposure to gold, CIBC said that the market remains significantly bullish
“The last time we observed such an optimistic positioning of CFTC copper managed money positions was in May 2018, with a market consensus for global synchronized growth, before trade disputes between the U.S. and China started to escalate,” the analysts said. “In our view, the current positive tone in the copper market could be further supported by a decline in trade disputes with the electionof Joe Biden as the next president of the U.S.”
Looking at the equity market, CBIC said that copper producers are significantly undervalued with the the market reflecting copper prices of below $4 a pound.
“Capstone, Copper Mountain and Hudbay are discounting the lowest copper price between $3.40/lb and $3.60/lb,” the analysts said. “As elevated copper prices persist in 2021, and on our revised price deck, we see potential for the higher copper prices to be reflected in our coverage group, and overall underpins our positive outlook on the sector.”
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.