Could There be a Copper Wipeout?

Commodities | Jan 18 2019

By Marin Katusa

On Wednesday, January 2 , CEO Tim Cook halted Apple stock and stated that the company’s earnings would fall well short of analysts’ expectations. A key reason behind the revenue miss was slowing Chinese demand.

Tim Cook made the shortfall about the “trade wall” but he forgot to mention that iPhones aren’t even a top 5 phone in China. Maybe Apple’s overpriced products aren’t what the mainland Chinese want?

Anyways, to a bigger theme, slowing Chinese demand…

Slowing Chinese demand is becoming a key theme for equity and commodity markets alike. And while a few less iPhone sales won’t affect the copper market, global consumer spending habits and economic health certainly will.

Make no mistake, I am very bullish on the long-term prospects for copper. I believe the world will become more electrified, which means increased copper demand. However, in the short run, macroeconomic signals are telling me that we could see one more wipeout.

Below I’ll tell you what the data and my analysis are saying.

51.4 billion pounds of copper was consumed globally in 2018. This represents a 1.08% increase over the same period in 2017. The chart below shows annual copper consumption since 1995.

The average annual copper consumption growth rate since 1995 has been 3.16%. However, over the last few years growth rates have slowed significantly. The average growth rate from 2015 to 2018 is around 0.83%.

The consensus long-term estimates by most analysts is that copper will see a 2.5% annual increase in demand. At this rate, global shortage of copper would occur in the mid-2020s. And that can only be resolved by higher copper prices to bring on higher-cost production. But, 1% copper growth doesn’t cause higher copper prices.

In fact, the copper price would decrease as supply would exceed demand over the next few years.

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