Material Matters: Copper, Lithium, Gold, Russian Coal and Oil

Commodities | Apr 19 2022

A glance through the latest expert views and predictions about commodities: tight copper market to be short lived; lithium growth remains strong; further upside to gold pricing; Russia driving uncertainty in commodities.

-Further support for strong copper pricing amid heightened tightness in the market
-Lithium growth to remain strong to the end of the decade
-Gold a safe bet for investors according to ANZ Bank
-Russia seeks alternative importers, Chinese coal to support global deficit

By Danielle Austin

Copper

Already tight supplies of copper may contract further given the implications of a potential new spread of covid in China, according to analysts at ANZ Bank. With Shanghai, home to the busiest container port globally and a sizeable distribution centre, in lockdown, port traffic has already been constrained, causing uncertainty for commodity markets.

Despite the threat of further spread, ANZ expects impacts on copper demand will be short lived, with investment in China’s electricity grid likely to cause increased demand for the metal. The bank is anticipating a 3.2% increase to China’s demand for copper this year, to 13.6m tonnes, and a 2.4% global demand increase. But ANZ notes supply chain disruptions in China have historically been short lived, with imports recovering quickly following initial lockdowns in early 2020.

Conflict in Russia, the fourth largest copper producer globally, could drive inventory lower in the short term and support strong copper pricing according to ANZ.

Lithium

Lithium remains on a growth trajectory through to the end of the decade according to industry analysts, with Citi noting as the commodity with the highest exposure to an expectedly bullish electric vehicle demand in coming years the already tight lithium market should benefit. The broker has lifted its lithium price forecast for the year by 11%, and expects a higher for longer pricing cycle will encourage a major supply response.

Despite strong pricing encouraging momentum in supply, Citi noted it would take time for investment in increased supply to come fruition, particularly given current labour and material shortages in Western Australia, likely keeping prices elevated.

While Citi expects that with aggressive growth, supply could meet demand in 2024, JP Morgan analysts expect a supply deficit to remain through to 2028, when it predicts the market to experience a modest and short-lived surplus.

The JP Morgan analysts are predicting the lithium market will benefit from a 22% compound annual growth rate between 2021 and 2030 before an anticipated shift to battery technology drives a decline in demand. While in the near-term, the broker notes a tight market should continue to support high pricing, it expects high prices to encourage increased supply and lead to eventual normalisation in pricing, and the analysts have reduced their expected demand for lithium after 2030 by -13%.

 Anticipated increased penetration of electric vehicles over the remainder of the decade will drive lithium demand, with the broker expecting 62% of vehicles sold in 2030 will be electric.

Gold

Geopolitical uncertainty and a stagflationary environment is driving increased investment in gold, seen as a safe bet by investors. ANZ Bank strategists consider gold a solid choice for investors in the current environment, noting given prices are expected to be maintained at over US$1,900 per ounce over the next six months, there are few downsides for buyers while further upside is possible.

Further, ANZ highlighted silver prices would likely follow gold given the geopolitical drivers. While geopolitical events often drive only fleeting impacts on gold strength, it was noted that the rapid rise of inflation and commodity supply constraints could offer support for a stronger for longer gold pricing cycle.

Russian Coal and Oil

As further import bans are levelled against Russia amid its ongoing conflict with Ukraine, global commodities markets remain uncertain on the outlook for coal, oil and gas.


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