Mixed views on copper price outlook

The copper market has been in a funk during the past several months, as rising supply and a softening Chinese economy have put a lid on prices. Experts are generally optimistic that the market will rebound in the years ahead, but there is disagreement over how strong that turnaround will be, and when it will happen.

Wood Mackenzie Ltd., an influential consultancy in the resource space, thinks spot copper prices will be stuck in a range of roughly US$2.70 to US$2.80 a pound through 2017, which is where they are now.

Desjardins Securities is a little more optimistic, as it expects an average price of US$3 in each of 2016 and 2017. Analyst Jackie Przybylowski thinks there are likely to be more disruptions to mine production this year than Wood Mackenzie expects. Wood Mackenzie is assuming just one million tonnes in its “disruption allowance,” and there have already been about 400,000 tonnes of disruptions identified to date.

“Our more optimistic 2015 and 2016 copper price forecast is based on a slightly greater mine production disruption assumption, including a slower ramp-up of new projects,” Przybylowski said in a note.

On the other hand, Wood Mackenzie is more bullish than Desjardins in the long term. It has a long-term target of US$3.50 a pound as it assumes a supply shortfall will kick in around 2020. The consultancy thinks a much higher price will be needed to encourage sufficient production in the future.

Desjardins is sticking with a more conservative long-term target of US$3. Przybylowski noted that Wood Mackenzie’s higher target implies copper miners will need significantly higher margins than they currently generate before they bring on much new production.

Peter Koven | June 8, 2015