by Steve Fiscor, Editor-in-Chief

This month, the E&MJ Price Index is reporting a copper price of $9,054 per metric ton (mt) or $4.12/lb, which is an 8.1% increase over the $8,372/mt ($3.81/lb) at the end of last year. Copper producers welcome anything above $4/lb but pinpointing the reason for the increase or what may happen with the red metal in 2023 is difficult.

Recent market reports are likely driving the forward pricing for copper. Copper production from Chile, the world’s largest producer, declined 5.3% last year to 5.33 million mt, according to Cochilco. Chile’s state-owned company Codelco reported its 2022 copper production declined a
little more than 10% to 1.45 million mt. Copper production in Peru, the No. 2 producer, has suffered outages related to social unrest nationwide. MMG idled its Las Bambas mine in Peru and Southern Peru Copper reported lower copper production figures for 2022.

Could the market reach an inflection point or is the longer-term trend toward high prices? John Gross, publisher of the Copper Journal, offered market commentary on CNBC recently. He noted that the average copper price for 2023 was expected to be about $3.50/lb, which would be down from the average of $4.01/lb in 2022.

Copper has been in global deficit for several years and inventories are at multi-year lows, Gross explained. “From a market fundamentals point of view, there is a very strong argument for the price of copper to remain strong and continue moving higher,” Gross said. “We are looking at a global deficit with reduced production from Chile due to falling ore grades and maintenance issues. Peru is facing social problems that will impact production. We have the Chinese market, which will be coming back online after a lockdown period and a falling U.S. dollar. These are supporting factors for a higher copper price.”

Gross reminded viewers that there are two sides to every argument. The World Bank and the IMF are forecasting a weak global economy and some people are expecting a recession, Gross explained. “The outlook is for interest rates to continue moving
higher to fight inflation, which would not support a higher copper price,” Gross said. “Those are the two competing arguments for the market moving forward.”

S&P Global Market Intelligence published Copper by the Numbers in January. The group said they thought the short-term outlook would be strained by high energy prices, rampant inflation and the increasing likelihood of recession in some key economies. Longer term, however, the energy transition will drive consumption growth, led by the U.S. as demand from energy transition projects supported by the Inflation Reduction Act of 2022 materializes.

S&P expects the supply response to lag, however, on a thinning pipeline caused by dwindling exploration budgets and a dearth of significant discoveries. They said they expect copper demand growth to be suppressed into 2023, causing a refined market surplus to widen and the estimate of the annual average three-month price to be the lowest on its rolling five-year forecast horizon.