Is the copper price headed for a soggy second half? This City research house seems to think so

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Liberum expects there to be ongoing support for the current copper price, which is close to an eight-year high. However, it says the market may loosen in the second half.

The City broker has increased its forecast for the red metal from US$3.20 per pound to US$3.60, bringing it into line with current spot prices.

The weak dollar, economic recovery and a renewed US stimulus programme (but this time with a green bias) are likely to underpin near-term demand, analyst Ben Davis said.

On the stimulus element, estimates suggest the new Biden administration could spend up to US$2trn in financial support for the world’s largest economy.

Targeted approach

But instead of dispensing helicopter money, the White House is more likely to be targeted in its approach with incentives for the nascent electric vehicle industry, commentators reckon.

Liberum’s Davis’ reasons this should be positive for copper demand given its use throughout electric vehicles, charging stations and supporting infrastructure.

“With the blue wave of success for Biden and the Democrats, we expect a major green stimulus package in the coming months,” the analyst said in a note to clients.

“Biden has talked of a US$2 trillion package over four years to ramp up clean energy in various parts of the economy in order to boost economic growth whilst also tackling climate change.

“This tack has been taken in much of the developed world in the wake of the coronavirus pandemic, with European economies taking the lead thus far.

“This is unsurprising given that a number of countries have put net-zero target dates into official legislation.”

Demand to slacken?

Looking further ahead, the Liberum number cruncher expects demand to slacken off in the second half of 2021 with China being the decisive factor.

Davis points out the country “hoovered up mountains of excess refined [and presumably cheap] copper” in 2020.

“This, coupled with recovering scrap…and mine supply (albeit weighted to risky greenfield projects), should see the market loosen in the months ahead.

“Whilst this is clearly a downside pressure on prices, we expect optimism on forward demand and deficits in further out years to keep prices supported near term as well as large inventory rebuild at Chinese smelters and rest of work restock of refined metal.”

Liberum’s top picks are Taseko Mines (LON:TKO) and Glencore (LON:GLEN).

It is also a ‘buyer’ of Anglo America (LON:AAL) and SolGold (LON:SOLG); a ‘holder’ of BHP (LON:BHP) Antofagasta (LON:ANTO) and Kaz Minerals (LON:KAZ); and says ‘sell’ Rio Tinto (LON:RIO).

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