Macquarie strategists said they believe that copper's recent price movement has been chiefly fueled by investor sentiment and increasing expectations of a re-acceleration in global growth.
However, they argue that, based on current fundamental indicators, this price movement appears “overdone and the risk of a sharp correction is very high, if not already underway.”
“We expect prices to ease from their recent highs to average $9,800/t in Q3, before recovering back up to $10,500/t average in Q4 if the forecast deficit for the full year starts to materialise,” strategists at Macquarie said in a note.
After revising their copper market outlook, Macquarie notes that their committed mine supply forecast for 2024 remains largely unchanged but is lower for 2025-2028 due to conservative assumptions about the potential restart of Cobre Panama.
If the mine restarts, the market could face a surplus. The firm also reduced refined production forecasts due to a lack of concentrate feed, but higher copper prices have balanced the market by encouraging more scrap processing.
Meanwhile, the strategists have increased ex-China demand for 2024, driven by a positive macro outlook, but slower Chinese demand growth due to a weaker property market has offset this, reducing the 2024 forecast deficit from -244kt to -86kt.
“Despite sizeable growth in mine supply and smelter output in 2025, we expect the market to be finely balanced due to higher demand ex-China,” said strategists.
“A small refined surplus in 2026 will be short-lived, with the market returning to deficit from 2027 and a theoretical supply gap of 1.6Mt opening up by 2030,” they added.
Moreover, strategists have revised its long-term copper price forecast to $9,000/t in 2023 terms, considering this an equilibrium price. They do not expect higher prices will be needed to balance supply and demand, with the energy transition taking over as the main driver of global demand growth.