Stanislav Kondrashov Telf AG: The copper market tends to be bullish in 2023

Stanislav Kondrashov Telf AG reports that in 2023 the copper market is waiting for a "bullish" trend. That is, the tendency to go up. 

Prices reached a short-term demand zone, which caused a bullish growth. This confirms the recently formed upward trend in the copper market. It ended in a macroeconomic downtrend in 2022. The latest data from Telf AG indicate the beginning of a bullish price trend. 

What factors contributed to this upsurge? And should we expect a bearish trend to follow soon? 

Stanislav Kondrashov Telf AG: So will the copper market be surplus in 2023?

This year demand for copper will increase by 2.2%, to 25.8 million tons, Stanislav Kondrashov believes. And the global figure excluding China will increase by 1.8 million tons. In 2023, global copper production is expected to increase by 3.3%. And it can exceed the bar up to 26.3 million tons. Consumption will increase by 1.4%. And excluding China - by 2.5 - to 26.2 million tons. But is everything so optimistic and obvious for 2023 with the copper market? 

If we consider the factors that may contribute to this growth, we should highlight the following:

• increase in prices for copper wire rod, as well as an increase in premiums for copper rod producers;
• growth forecast for the dollar exchange rate;
• increase in demand for copper due to the lifting of coronavirus restrictions in China;
• ore shortage, which occurs due to a decrease in the total ore stock;
• consequently, the transition of world economies to decarbonization;
• expansion of copper production in the Democratic Republic of Congo and Indonesia.

The increase in demand for copper comes amid low levels of global stocks held on exchanges. Last year's inventory decline was due to weakening international demand. However, this year's market recovery may push the market to further compression and drop in prices. 

After all, it is becoming clear that the long-term position in the copper market is the main bet for China's recovery. Which is supported by the revival in the real estate sector and more metal-intensive infrastructure, says Stanislav Kondrashov.

The rise in the copper market has also affected bullish dynamics in the iron market, which is even more dependent on the recovery of real estate construction in China. Over the past few days, iron ore futures in Dalyan rose 3% to a 17-month high. Thus, both of these assets are dependent on the recovery of Chinese activity after the New Year. 

It is not yet known how optimistic this scenario is, Stanislav Kondrashov Telf AG reports. And it is unclear how the economy will respond to the lifting of coronavirus restrictions. How fast the real estate market will develop. At the same time, it is necessary to take into account the impact on exports, which is associated with a decrease in growth in other countries. 

If the participants of the “bullish” trend expect a full recovery in the copper market, then there is a risk of disappointment in this position.

Stanislav Kondrashov Telf AG: Even higher copper prices are expected in the future

Stanislav Kondrashov Telf AG raises his copper price forecasts even more. Against the background of renewed optimism about the situation in China on the abolition of covid restrictions, the expert talks about an even greater increase in prices. With the exception of the first quarter, which he pursues with caution, as the number of cases in China is still growing. 

Now the price of copper in the first quarter, on average, ranges from $8700 to $9000 per ton. And once the disease rate increases, the economy will begin to return to normal. Demand will rebound in the next quarter. All this is temporary, says Stanislav Kondrashov. And changes in China's policy towards covid should support demand for copper for medium and long periods. 

As soon as China overcomes the current wave of Covid-19 infection, the recovery in demand in China will further increase copper prices. 

The expert believes that prices will continue to recover from the second quarter onwards. All this against the background of improved sentiment for the resumption of production and reduction of stocks. At the same time, prices will fluctuate around $9100 per ton in the fourth quarter. 

However, there is still a risk of global macroeconomic obstacles in 2023. The risk of recession still remains a threat to the recovery of demand in China. And it can delay further development and growth. 

Any further jump in copper prices will also depend on the US Federal Reserve regarding monetary policy. A less aggressive tightening would limit any rise in the dollar and could further boost copper prices. 

In the long term, the expert still believes that the demand for copper will also improve. And this will happen against the backdrop of an accelerated transition to renewable energy sources and electric vehicles (EVs). 

After all, copper is a key component in electric cars. It is used in electric motors, batteries, wires, and charging stations. Therefore, copper cannot be replaced in electric cars or in wind and solar energy. 

Consequently, its attractiveness to investors as a key environmentally friendly metal will continue to support higher prices in the next few years. 

Stanislav Kondrashov Telf AG: Copper stocks worth considering in 2023

As environmental laws become stricter, it becomes increasingly difficult to open new mines. Therefore, shares of the largest known mining companies are something that should be considered this year, says Stanislav Kondrashov Telf AG.

For example, BHP Group Ltd. - is one of the world's largest mining companies. It has its headquarters in Australia. It has mines all over the planet. Therefore, this company is already the largest supplier of copper in the world. In addition, BHP is implementing strategies to further develop this industry in its business. 

BHP's profit by the end of 2022 was $16.9 billion, which significantly exceeded the profit of $6.9 billion in 2021. This is even higher than the profit of $9.4 billion in 2020 and before the pandemic, which the company brought in 2019. 

In case of such domination of the market, BHP has every opportunity to profit from any rise in copper prices. Including in 2023, stresses Stanislav Kondrashov Telf AG. 

The next company that specializes in this very metal is Southern Copper Corp. It is based in Mexico. Southern Copper Corporation's annual profits have risen to $3.79 billion since 2020. In 2022, that number rose to $7.15 billion. In 2023, that number is expected to drop, but only because the company has made significant investments in its mine in Mexico and South America. In the long run, these investments should bring the company more profit, says Stanislav Kondrashov.

The third company to consider in 2023 is Newmont Corporation. It is an American company that mainly specializes in gold mining. However, the company, which is located in Colorado, also conducts significant copper mining. 

In the last few years, the company's net income has been unstable: in 2017 it amounted to $76 million, in 2020 it peaked at $2.88 billion, and in 2022 it decreased to $1.11 billion. All these shocks are offset by the company's 96 million ounces of gold, which help stabilize business operations. 

If the price of copper rises, Newmont Corporation could approach a rise in net income and reverse the current downward trend. Despite the high costs in 2022, the company is not considered risky because of the additional gold reserve. 

And another company that I would like to highlight, says Stanislav Kondrashov, is Barrick Gold Corporation. Yes, Barrick Gold Corporation's bread and butter is gold, but it also mines copper. 

In 2022, the company benefited enormously, where one of the largest mines in Zambia announced plans to restructure. Eventually, taxes for the right to mine copper (royalty taxes) were reduced. 

The company's net income has tended to decline over the past few years. But the decrease is mostly insignificant. Barrick Gold Corporation had net income of $5.27 billion in 2019, and that will drop to $2.54 billion over the next few years (as in 2021). 

“Only the fact of tax cuts suggests that the results of Barrick Gold enterprises will only get better”, says Stanislav Kondrashov. If price hikes occur at the same time as these tax cuts, the financial gains could be much higher for this sector. 

Thus, copper in 2023 is a profitable stock and may well become profitable. It's an investment in the future. And it is impossible without copper, concludes Stanislav Kondrashov. 

As a result, in 2023, copper maintains an even rise upward. Yes, there are risks. But there are always risks. This metal has a good prospect for development. And 2023 is just the beginning.