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Australia exported $124.1 billion worth of iron ore last financial year and $12.27 billion in copper.
Citi headlines a growing chorus of market pundits tipping copper’s rally to extend into next year due to improving demand for electric vehicles, and solar and wind power generation.
The booming AI sector will also drive demand given it is used to distribute power within, and to, data centres in the US and globally, analysts noted.
The rally in copper has also had an outsized influence on the Australian dollar compared to iron ore because the base metal is increasingly viewed as an indicator of economic growth, particularly in China.
Citi recommended that investors start buying the metal over the next three to six months, advising that any price below $US9000 was “cheap”. The broker sees prices hitting $US10,000 a tonne by the end of this year, before reaching $US12,000 the year after that.
Goldman Sachs is similarly bullish, declaring over the weekend that “copper’s time is now” as supply risks continue to mount.
The broker noted that London Metal Exchange stockpiles have nearly halved from their peak in the fourth quarter last year. However, contrasting figures released last week showed that copper inventories at Shanghai warehouses have surged to the highest level since the onset of the pandemic.
“The supply shock which began with aggressive concentrate destocking and then sharp mine supply downgrades last year has now advanced to an increasing bind on metal production,” said Goldman metals strategist Nicholas Snowdon.
Iron ore below $US90
Data released on Monday painted a mixed picture of the outlook for Chinese steel demand, with growth boosted by robust factory output and investment at the start of the year. However, nationwide steel production was only marginally higher in the first two months compared to the same time last year.
Like Citi, Goldman sees copper prices reaching $US10,000 a tonne by the end of this year and then $US12,000 by the end of the first quarter next year.
The bullish predictions stand in stark contrast to iron ore markets, where a growing number of analysts are predicting that prices could remain below $US100 a tonne in the near term. On Tuesday, however, iron ore futures were trading at around $US105 in Singapore.
The latest wave of selling to hit the bulk commodity was triggered by reports that steel mills in China were cutting production due to weaker-than-expected demand following the Lunar New Year holiday, and mills suffering extreme losses.
“The slow pick-up in steel demand in China, despite March being a seasonal peak consumption month, has weighed on steel prices, eventually triggering production curbs at some domestic steel mills,” said ING commodity strategist Ewa Manthey.
Indeed, major steel mills in the Guangdong province will cut production after local construction steel prices plunged, Bloomberg reported. Six mills will shut blast furnaces or rolling mills for maintenance during the next four weeks, cutting output by between 20 per cent and 50 per cent.
Reduced demand has sparked a build-up of iron ore at ports in China, with inventories swelling to 140.9 million tonnes last week – the highest level in more than a year.
That prompted Westpac to forecast a further drop in iron ore prices below $US100 a tonne in the third quarter, before another decline below $US90 a tonne in the fourth quarter.
Citi agreed that the sell-off in iron ore had further to run, but said it would be buyers of the commodity if prices dropped below $US90 a tonne. The broker still believes iron ore can hit $US130 in the coming months.
Macquarie said in a note this week that the sell-off in iron ore markets had opened up “value opportunities” in base metals and gold. The broker prefers South32 and Rio Tinto over BHP and Fortescue Metals among the large-cap stocks and likes Sandfire among the mid-caps.