Copper prices will soar to record levels in the next 12 months as a looming supply shortage coincides with rising demand, with spot supply turning into a deficit in 2023, Goldman Sachs said.
While some traders expect new supply to weaken copper fundamentals in the short term, Goldman Sachs believes such expectations have not materialized. Goldman Sachs now forecasts a deficit of 178,000 tonnes in the copper market next year, up from a previous forecast of a deficit of 169,000 tonnes.
Policy goals and green transition commitments continue to increase, but supply-side responses have so far been minimal, leading to earlier and larger supply gaps.
Copper has fallen 22.5 percent from an all-time high of $10,845 hit in March amid ongoing recession fears, a stronger dollar and slowing Chinese growth. But copper rose nearly 11% in November, its biggest monthly gain since April 2021, and is up another 3.5% so far this month, as top metals consumer countries eased virus restrictions, boosting demand prospects.
A clearer outlook for China's recovery means that copper prices are close to a trough and the macroeconomic backdrop for next year will be more favorable. Goldman Sachs predicts that copper prices will hit record highs next year, raising its 12-month copper price target to $11,000 a tonne from $9,000, which would represent an increase of about 30% from current prices.
Goldman Sachs also lowered its forecast for global mined copper supply next year by 434,000 tons, mainly due to lower expectations for Chilean output.
Goldman Sachs raised its copper demand forecast for China's green transition by 250,000 tonnes after updating its outlook for solar panel installations next year.
Chinese buyers will step up to replenish copper inventories as the country's economy accelerates its pace of reopening from the pandemic and measures are introduced to stabilize the struggling real estate sector.
As the global tangible copper inventory will be less than 200,000 tons this year, the market will experience a supply shortage again next year, making the supply fundamentals of the copper market tight to an unprecedented extreme level.
Goldman Sachs raised its average copper price forecast to $9,750 a ton in 2023, up from its previous forecast of $8,325 a ton.
Copper prices are expected to average $12,000 a tonne in 2024, up from a previous forecast of $10,750 a tonne.