Does the cycle lose steam? Copper price moderates due to higher supply and weaker demand

Experts agree that they are cautious about how prices will continue.

The increase in the price of copper – which went from US $ 2.09 per pound on March 23 of last year to US $ 4.86 per pound on May 10 of last year -, then triggering falls and more ups and downs, was part of the scenario. which the National Mining Society (Sonami) analyzed yesterday together with the international consultancy CRU to answer whether the red metal cycle is losing strength.

“It draws a bit of attention when one thinks that until recently we were discussing whether we were entering a copper price supercycle or not,” said Erik Heimlich, the principal analyst of the international consultancy CRU.

The consulting firm agrees to the question, given that production is reacting positively and demand is slightly weaker than budgeted. This, added to the announcement of China to release strategic inventory to normalize prices.

According to the expert, the price trajectory has been driven by a combination of factors such as the change in monetary policy in the United States in the face of the inflationary outlook, which has had an impact on the dollar, causing a direct effect on commodity prices. . Added to this is China’s reaction to their high prices.

The specialist explained that there have historically been numerous opportunities in which the Chinese government has entered the copper market to acquire strategic reserves, but at least in the metal, it had not happened that it went out to sell these reserves to moderate a bit what it saw as a atmosphere a bit speculative.

With this, he added, there has been a moderation in demand that is mostly a reaction to price. “We are seeing that trend of moderation and that is a bit what caused the fall in price and what is also going to determine the forward trajectory,” he said.

End of the supercycle?

For this reason, unmarking those who predicted as a supercycle, he stressed that although copper is key to the new economy, we cannot forget the moderation that China is showing: “It is transforming. It is going through a series of transitions today that are going to profoundly transform the market and there is no one who is going to take the place of China quickly. ”

For Heimlich, a period of very low inventories has continued and this will be decisive for the future, and he also sees a progressive strengthening of the dollar going forward.

“The price, in a negative scenario, could easily reach US $ 5,000 per ton. This is where the price floor is. We do not see that but a small moderation, because there are positive factors that are still present and, above all, inventories are still very low and that supports the price of copper, “he assured.

Meanwhile, the president of Sonami, Diego Hernández, said: “The price we have today is a demonstration that copper does indeed have a future, with a balanced supply and demand. We have realized that supply and demand is quite balanced ”.

When consulted, the director of Studies at Vantaz, Daniela Desormeaux, does not see that the price of copper is losing strength.

“We have always said that we are in a positive cycle, but we have always looked at this with caution. The risk factors are associated with the control of the pandemic, “she said, adding that” as supply begins to recover, demand already grows with less momentum.

Meanwhile, the executive director of Plusmining, Juan Carlos Guajardo, points out that conditions are favorable for good prices and for a prolonged period, but talking about a supercycle implies very particular conditions. “There is a risk of a relevant crisis towards the middle of this decade as a result of the measures to face the pandemic. For this year I see that the peak of industrial activity occurred in the first part of the year and, therefore, the second part should be with less intensity in prices ”, he pointed out.

Source: Diario Financiero