The slowdown in China combined with a stronger dollar have reduced the price of copper to its lowest rate in 6 years. Prices for the metal have declined over 20% for the year.
Miners have been paring back investments to reduce output. The demand/supply equation is in better shape than aluminium which is facing oversupply conditions. It is currently in balance with the expectation that supply will not be enough in 2016 thanks to recent cuts in mining production.
Our view is that copper prices will rise in 2016 and 2017. The bottom will be reached sometime around the end of 2015.
The reasons for this view are:
- The Chinese slide may have bottomed out. New stimulus measures will return China to growth although slowly.
- The US FED will raise rates either in December or in the first half of 2016. This will be seen by the market as negative at first but in reality it means the US is normalizing and growing. The US still accounts for a large share of world GDP, thus demand for copper will pick up.
- It is true that some emerging markets will fall further, but I think this will be short-lived.
- As the US picks up steam it will create the right environment for other countries to increase growth, especially China.
- The supply of copper will not be enough to keep up with the increase in demand thus expect prices to rise faster than what analyst are estimating. Prices should rise by 10% or more in both 2016 and 2017.