International banks disagree if copper is in a supercycle or a limited boom

There is no agreement between international banks and the questions are repeated in other raw materials that are rising in the framework of the global economic recovery.

The high prices of copper raise the question regarding the terrain on which it is moving, if it is one where its value is favored simply by the recovery and the policies to support the economy or in reality it is the beginning of a new supercycle driven by accelerating decarbonization.

In the market there is no consensus on the matter, which in the opinion of Juan Carlos Guajardo, executive director of Plusmining, is not strange. “A first difficulty is that between 2003 and 2012 we experienced a historical supercycle, so when using the same term to describe the current situation, it tends to assimilate that something similar will happen and that is not easy,” says the national expert.

From his point of view, while in the recent past the impulse came from what he calls “China’s industrial peak,” this time the stakes are on green transformation, but he indicates that not everything is in this process. saying.

“Expect winning commodities (copper, lithium, nickel, graphite) and losing (coal, platinum). But the specific technological solutions that will define this new world have yet to be decided. The types of batteries that will dominate in electromobility are not yet fully defined, for example, ”says Guajardo.

Dissonant opinions

Faced with an open scenario, international banks have taken opposite positions, with Bank of America (BofA) and Goldman Sachs (GS) offering long-term bullish prospects based on structural changes, while JPMorgan and Julius Baer aiming for a one-off hike. based on conjunctural events.

GS is undoubtedly the one who has ventured the most, pointing out that “copper is the new oil”. As detailed in the report, “Copper will be crucial to achieve decarbonization and replace oil with renewable energy sources and the market is currently facing a supply crisis that could raise the price by more than 60% in four years.”

Based on the above, the entity projects the price of copper at US $ 4.9 per pound within a year and US $ 6.5 in 2025, which far exceeds Bofa, which in 2022 sees it at US $ 4 , 17. Even so, they share the line of analysis quite a bit.

Bank of America believes “decarbonization coupled with an increase in the popularity of renewables and electric vehicles could start another period of sustained increases in demand.”

According to the report prepared by the team led by the commodities strategist, Michael Widmer, “the growth consumption potential could reach around 3% between 2022 and 2025, compared to 2% in the last thirty years” , which is why they assure that “without a replenishment of the project portfolio (in mining), the copper market can function empty beyond 2024.”

Meanwhile, JPMorgan is skeptical, projecting that the red metal is close to its ceiling and that it will fall to US $ 3.6 in 2022. “As it comes out of lockdown, the world will go from buying metal-intensive goods to spending money on going out to have dinner, visit friends and travel, “says the US bank.

Additionally, its analysts suggest that the increases in production in the mines will be enough to respond to the greater demand for copper due to the change towards renewable energies, which would increase its consumption by 10% between now and 2025.

The latter is also pointed out by Carsten Menke, Julius Baer’s next-generation research director, who argues that the optimistic mood around copper is mainly due “to possible disruptions on the supply side.”

In fact, they highlight that among the concerns are “the presidential elections last weekend in Peru, one of the copper powers of Latin America, where a leftist candidate with nationalization plans is at the fore.” However, Menke assures that it is highly unlikely that the copper flow from the neighboring country would be cut off. “Therefore, we remain reluctant to pursue the copper rally,” he stresses.

The other commodities

It should be noted that the term supercycle has reappeared on the scene not only with regard to the 83.1% rise in copper in one year, but has also been used to refer to commodities in general.

This is because after the fall that was generated last year in the first stage of the pandemic, the vast majority shot up to levels not seen since the supercycle promoted by the Chinese. The best example of this is iron, which accumulates an increase of 105% in 12 months.

The issue is not limited to metals either. World food prices are at their highest in more than six years, with increases of 85% in corn, 72% in palm oil and 68% in soybeans in the course of a year.

Alex Sanfeliu, who heads UK brokerage World Trading Group, assured Bloomberg that the food supply remains tight. “This opens the door to high prices, high volatility and a friendly outlook to be with us for longer … Maybe this will start a mini super cycle,” he said.

Faced with this varied panorama of increases, in the framework of supply and demand imbalances, in another report Goldman Sachs has indicated that “raw materials continue to be the asset class with the best performance of 2021.”

Source: La Tercera