Commodity prices have grown very strongly and commodity stocks have performed even better recently. Copper led the pack in commodities as the price of the metal rose 75% from pre-COVID levels to a new all-time high. So the big question is, are headwinds emerging now?
Copper prices fell about 12% after rising 69% from pre-COVID levels to a new high in 2021. However, they still remain up nearly 50%.
On the demand side, many believe that the peaks in demand growth in this cycle have been observed. Thus, JP Morgan reduced the growth of its demand for copper in 2021 to 7%, against 9% previously. Meanwhile, on the supply side, the belief is that copper is going to be in great shortage, but one is not sure because during the last price hike in 2016-2018, $ 25 billion worth of projects. copper have been approved with annual production capacity. of 1.8 million tonnes. The supply of these projects would enter the market now and in the coming years.
Peter McGuire, CEO of XM Australia, spoke with CNBC-TV18 about the fundamentals of copper and other base metals.
Asked about a possible break in the record rally that copper witnessed, McGuire said: “This has been a very solid correction and we have also seen a stronger comeback for the US dollar index so it has played in. both ways.”
The CEO of XM Australia said that from a strategic point of view, China has been increasing its reserves since 2020, when prices were very cheap, so it remains an elephant in the room. He added, however, that they believe the prices are relatively cheap today compared to what they would experience later this decade.
McGuire believes that the commodity supercycle that reversed in 2001-2002 has not really gone away and that they are still embedded in this cycle. With the type of population and infrastructure growing across the planet, this cycle is going to stay in terms of demand, he said. “The demand will be very strong,” he reiterated.
Commenting on the price of copper, he said, the $ 9200-9300 per metric tonne is quite cheap compared to the long-term average. He said that over the next 3 to 4 years, the price would be over $ 11,000 per metric tonne.
He said with the type of construction activity going on in Thailand, Vietnam, the Philippines and Australia, demand for all base metals and steel would be strong.
On oil, McGuire said, it has seen incredible bullish progress and the commodity is at three-year highs. The overall picture of demand is only increasing, he said, adding that for the summer period Brent has the means to climb to $ 80 a barrel. Moreover, the Organization of the Petroleum Exporting Countries (OPEC) holds all the cards and plays them well, so the loser is the consumer, he said.
For the full discussion, watch the video
(Edited by : Kanishka Sarkar)
First publication: STI