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Copper price forecast for 2020 and beyond

By Elena Berton

Copper, an essential component of many industrial applications, is a reliable barometer of the overall health of the global economy. What's in store for copper prices in 2020 and beyond?

Copper was the first metal handled by humans, who began using it 10,000 years ago to make coins and ornaments.

Today it’s one of the most commonly used metals in the world as a key component of essential industrial applications such as electrical wiring, plumbing, roofing and machinery, as well as high-tech.

Although far less precious than gold, platinum and silver, its price is a reliable barometer of the overall health of the global economy. Hence the nickname “Dr Copper”.

Supply and demand

The world’s supply of copper comes mainly from underground mines and from recycling existing products. In fact, copper is one of the most recycled metals because it can be fused repeatedly without losing its chemical or physical properties.

Despite increased demand for copper produced from ore in recent years, increases in reserves have grown, and there is more identified copper available to the world than at any other time in history, according to the United States Geological Survey, a US government agency.

This means that even though demand is forecast to grow exponentially in the course of the century, the world won’t run out of copper soon.

Still, only a small fraction of the planet’s copper resources is economically viable to mine at current prices and using current technologies.

Where is copper produced ?

Chile is the world’s number-one producer, with 5.5 million tonnes produced every year. Peru ranks second, with 2.3 million tonnes, followed by China, which produces 1.74 million tonnes per year. Other top-producing countries are the US, Australia, the Democratic Republic of Congo and Zambia.

As copper production is scattered around the world, the risk of disruption in global supplies is low.

The copper market

The production of copper has been mostly absorbed by the construction industry and the manufacture of white goods, since the metal is a main component of electrical motors.

However, the increasing trend towards renewable energy, energy efficiency, sustainable buildings and electric vehicles is lifting demand in the so-called green sector.

Producing a wind turbine requires more than three tonnes of copper, while the metal is also needed in the lithium-ion batteries that power electric vehicles, as well as their motors, inverters and charging points.

Its key role in the shift to a low-carbon economy is the reason why many analysts remain bullish about copper prices in the future despite the current subdued levels.

Copper price history

Because the metal goes into a in a wide range of industrial applications, the copper market is viewed as a health check for trends in the global economy.

In the last decade prices hit a high of $9,911 (€8,886/£7,435) a tonne in February 2011, when China became the world’s second-largest economy after taking the title Japan had held for more than 40 years.

Just over two years earlier copper had languished at $2,970 as the global financial crisis deepened.

Since US president Donald Trump started his trade dispute with China in June last year, the price of copper has dropped more than 20 per cent.

After hitting a two-year low in September, copper prices have been slowly moving higher, especially as the US began signalling a resolution of the ongoing trade conflict with China – a move that could help lift the global economy out of its slowdown.

Copper price forecast 2020 and beyond

The main unknown over copper prices in the future is how strong the Chinese economy will be over the next decade.

Prices are weak and market sentiment bearish because investors are focused on disappointing demand, say IHS Markit analysts, who remain very bullish on the copper long term outlook. Instead, they argue the market is ignoring that production is very weak.

“Over the past months there has been a steady draw down in inventory. Copper inventory continues to be lower than normal. We think prices should be at or near the bottom,” said IHS Markit’s John Anton.

IHS Markit sees prices averaging $5,875 a tonne in the fourth quarter of 2019, rising toward $6,400 in the first half of 2020.

“We therefore regard prices below $6,000 as a good buying opportunity. Although prices have moved lower than expected, we would seize on current prices to lock in forward buys,” Anton said.

Capital Economics’ analyst Caroline Bain agrees that growth in copper demand, though subdued, is still outpacing mine supply and will pick up gradually in 2020.

“We forecast that the price of copper will rally,” Bain said.

Capital Economics is predicting a price hike to $6,800 a tonne by the end of 2020, then advancing to $7,500 a tonne by the end of 2021 and finally surging to nearly $10,000 a tonne by the end of 2025.

According to Morgan Stanley, copper "retains the strongest fundamentals" among base metals and the investment bank, which has placed it as second in its “investment hit list” after cobalt, sees the potential for a 7 per cent price rise in 2020.

On the other hand, Fitch analysts remain bearish on the copper market due to the US-China trade tensions and fears of a global economic recession, which are expected to hurt overall metal pricing.

Fitch forecasts copper prices to average $5,700 a tonne in 2020, down from $6,000 in 2019, based on the recent fluctuations between $5,800 and $6,000 that reflected political developments such as trade conflicts and civil unrest in Chile.

Should you invest?

If near-term copper prices may be prone to buffeting as the global economic recovery appears uncertain, sentiment could turn bullish into the new decade because fundamentals show strong support for higher prices, analysts say.

Fitch says the long-term copper outlook after 2021 may be supported by demand growth in India, increased electric vehicle production and demand in the renewable energy industry.

Matt Badiali, senior research analyst at Banyan Hill Research, reckons that the world will need to produce 5 million metric tonnes of copper per month by 2030 –more than twice the production in 2019 – in order to meet the projected demand from the electric-vehicle industry.

As an example, the latest electric vehicle from Tesla Motors requires at least 163 kilograms of copper.

Robert Friedland, the founder of Canadian mining company Ivanhoe Mines, believes the fight against air pollution and climate change will lead to an explosion in demand for copper through the switch to cleaner energy supplies.

He expects that the manufacture of solar panels and wind turbines will boost demand by 56 per cent by 2030.

Meanwhile, China will continue to drive global consumption over the coming years, according to Fitch, as the country is by far the largest consumer of refined copper.

FURTHER READING: Silver price forecast 2020 and beyond

FURTHER READING: Platinum price prediction for 2020 and beyond

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