Copper Prices Expected to Level and Decline Despite Surging Supply and Rising Demand

Copper prices, which soared in 2021, have a mixed forecast for 2022 that mostly points to prices dropping, driven by increased supply despite rising demand.

This past October, Reuters reported analysts have revised their forecasts to a surplus of 82,000 metric tons of copper. This is a far swing from an earlier deficit of 100,000 metric tons in mid-2021. According to Reuters, cash copper contracts on the London Metal Exchange are expected to average $9,000 per metric ton in 2022, a consensus forecast based on 29 analysts' predictions. There seems to be consensus consistent with the Reuters report.

According to the World Bank’s Commodities Market Outlook report in October 2021, copper prices declined 3% in the third quarter of 2021, just 7% of what it was in mid-2021, and it was the only base precious metal to fall in price.

The World Bank outlook attributes a softening in prices reflected "a slowdown in China's real estate market along with weaker global auto production. On the supply side, mine output continued to edge higher despite a three-week strike in Chile, and China released part of its state-owned stockpiles. Copper prices are forecast to fall 5% in 2022, after an estimated increase of 51% in 2021 as supply increases. Mine supplies are expected to increase strongly over the next two years, notably from the new Kamoa-Kakula mine in the Democratic Republic of Congo, as well as in Chile, Indonesia, Peru, Russia and Serbia.”

Copper demand, however, is set to be on the upswing long term, driven by trends in more sustainable energy products such as electric vehicles, charging, renewables generation and grid storage.

Not all are bullish on copper prices. According to Turner Construction Co.'s quarterly Building Cost Index released in early February of 2022, significant construction activity is anticipated through 2022 while industry faces supply chain constraints and labor shortages. They also see signs of leveling, but are cautious, stating that labor shortages and supply chain strains are causing many material costs to escalate, including copper.

"While some material prices appear to show signs of leveling, there is continual escalation in steel, copper, and aluminum prices. In addition, the supply chain disruptions have continued at unprecedented levels. With subcontractor backlog returning to pre-pandemic levels and skilled labor shortages persisting, competitiveness by vendors and subcontractors appears to be somewhat less aggressive as compared to earlier in 2021,” said Attilio Rivetti, Turner’s vice president, director of preconstruction and estimating, who is responsible for compiling the Cost Index.

The overall feel of the market is not nearly as dire as it was a year ago. The light at the end of the tunnel for copper prices may glimmer more hope that despair in 2022.