For copper, Société Générale strategists’ base case suggests a bearish outlook, pushing prices down to $7,500/t in 2Q22. In the upside scenario, the risk-on market sentiment would support copper and see prices wavering around $10,000/ in 2Q22. Finally, the downside economic scenario would see the price $1,000/t lower than in the base case.
Base case for 2Q22 (50% probability)
“Copper at $7,500/t. The copper market is reconnecting with its fundamentals and we expect it to be bearish in the short-term as Chinese copper demand should weaken due to the sharp slowdown in real estate construction and the continued COVID-19 zero-tolerance policies. The crux of our bearish short-term stance remains the prospect of 3.6mt of net mine supply flooding the market by 2023 and pushing prices down to $7,500/t in 2Q22. In the longer-term, both supply and demand outlook for copper are extremely bullish.”
Upside scenario for 2Q22 (25% probability)
“Copper at $10,000/t. The upside scenario would not be a game-changer for copper demand as the range of outcomes for the GDP path is narrower than in first wave, as economies have learned to live with covid. More importantly, households are likely to spend excess savings accumulated during the pandemic on services rather than goods. However, in this scenario, the risk-on market sentiment would support copper and see prices wavering around $10,000/ in 2Q22, slightly higher than current prices.”
Downside scenario for 2Q22 (25% probability)
“Copper at $6,500/t. The downside economic scenario based on new restrictions due to the Omicron variant would not be too detrimental to copper demand but would cause risk-off sentiment and see the price $1,000/t lower than in our base case. If restrictions further dampen global supply chains, which are already in dire shape, this would dent manufacturing activity and copper demand. On the other hand, it could also have some bullish impact in the event of mine disruptions due to COVID-19.”
