NEW YORK (Scrap Register): The Canadian investment bank, TD Securities looks for copper prices to average $6,763 a ton during the year 2018.
TD Securities’ quarterly average forecasts show that analysts expect copper prices to average $6,675 a ton during the first two quarters of the next year and $6,850 a ton during the last two quarters.
At the peak of 2017, copper was up nearly 30% on the year and rose to levels not seen since mid-2014, as strikes and mine disruptions in Chile and Indonesia, along with a betterthan- expected Chinese economy led the charge higher.
“Moving into 2018, we are more cautious on the copper outlook. We expect a slight pullback as 2017 draws to a close and into the early months of next year, before ultimately recovering back toward $6,800-7,000/t levels as the year progresses,” TD Securities added.
In the near-term, we judge that prices have moved too high too early relative to the fundamentals. Market expectations of demand coming from China and electric vehicles, as well as the impact of the scrap import ban are both likely overdone.
The fundamental picture for the red metal remains somewhat unattractive relative to the recent price action as there is plenty of primary and above ground supply remaining and demand expectations are likely too lofty at this time.
Indeed, on the supply side, inventories remain aplenty both on and off exchange, with days of consumption still above 70. On the mine supply front, many of the copper bulls state that under -investment in new projects will create shortages and lead to deep deficits in the future.
Although we agree with this notion, it should not be an issue until late 2019-2020. As it stands for 2018, at current prices, essentially the whole of the cost curve is making money and it is likely that miners will keep the market well supplied.
Furthermore, the import situation in China should lend support and prevent any major selloffs as the ban of category 7 imports by China could mean higher imports of refined metal for a period of time. But, this is unlikely to be a long-term continuing trend.
Scrap processors in Southeast Asia have been on the rise, which means that plenty of category 7 scrap will be disassembled and processed outside China, before ultimately being shipped to the Middle Kingdom as the allowed category 6 scrap, suggesting the impact of such a ban would be fairly muted on the supply-demand balance.