Canaccord Genuity raises Q1 copper price forecast

Canaccord Genuity mining analyst Dalton Baretto has raised his copper price forecast for the first quarter from US$3.50 per lb. to US$3.75 per lb.

“Given the average quarter to date price of $3.61 per lb., this implies that the price will need to average $3.89 per lb. over the rest of the quarter,” he wrote in a Feb. 10 research note to clients, adding that his price forecast for the second quarter is $3.90 per pound.

“Copper prices are up 7% so far in 2021, and the physical market is tighter than we have seen it at any time since the peak of the last commodity cycle prior to the GFC,” he continued, referring to the global financial crisis of 2007-2008.

“Both concentrate and refined metal availability is extremely limited, and the cash-3m spreads are now firmly in backwardation.” (Backwardation occurs when the current price of an asset is higher than prices trading in the futures market.)

Baretto also noted that industrial commodities as a whole “have picked up where they left off at the end of 2020, with several commodities showing significant strength year-to-date. The drivers have remained the same — significant liquidity coupled with positive sentiment around a global reflation, infrastructure-focused stimulus, vaccine-driven demand boost, a US$ poised to weaken, and an expectation that the authorities (Central banks and Treasuries) won’t take the punch bowl away any time soon.”

The analyst also outlined three key factors that suggest the copper price could rise from its current US$3.75 per lb. range to as high as US$4.00 per lb. in the near-term.

First, he noted, Canaccord Genuity’s research team is “anecdotally hearing more and more that with travel in China being limited for the annual Chinese new year migration, a number of manufacturers are planning on remaining operational through the Lunar New Year Week. (Chinese New Year officially starts this year on Feb. 12, but citizens get seven days off work from Feb. 11-17.)

Second, Baretto said, is the progress being made on U.S. President Joe Biden’s US$1.9 trillion stimulus package, which he says “could result in a significant weakening in the US$.”

Third, are supply disruptions leading up to a general election in Peru and a Chilean Constitutional Convention, both on April 11.