Numera: Sell copper

Numera with the note. I agree but am more bearish and consider the current bounce a mania.

Copper–Underweight. Weak demand prospects, rising mine supply and weakening trader sentiment all worsen the risk-reward balance of copper for2022. We expect spot LME prices to drop $1000 / MT 12M out.

Up until May of this year, copper prices benefited from strong physical demand and tight mining and refined copper supply.

• Since June, however, falling residential investment and weakening factory output has weighed heavily on copper usage.

In addition, CN traders have reduced speculative purchases, further dragging on prices.

• Copper supply, in turn, is becoming less supportive. Copper ore has reverted to its pre-COVID path, supporting refined production.

• Weaker fundamentals explain about 60% of the drop in Cu prices since June. Waning trader sentiment explains the remaining 40%, pushing spot prices about $150 / MT below their ‘fair’ (equilibrium) value.

• The world economy should keep growing about potential in 2022. However, we expect CN GDP growth to decelerate considerably to less than 6%.

• Weakening CN growth limits the upside for copper usage. While green energy applications (EVs, solar panels) should keep rising, they are still too small to have a major impact on demand. Global demand should rise 2.3% in 2022.

• Residential construction is by far the largest copper end-use. A property crisis in China poses significant risks to the Cu outlook. Our simulation work reveals that a 20% drop in CN property prices could lower spot prices by 30%+.

• The most likely outcome is for prices to fall to around $8200 / MT by this time next year. We estimate only a 36% chance of positive price returns.

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