The brokerage firm Jefferies had predicted a slower improvement in the underlying outlook for copper. Based on its estimates of supply and demand, the company believes that the metal market will experience a prolonged period of deficit, which will lead to a major increase in copper prices in the near future.
The copper market woke up this week after a year-long hibernation as the metal’s price broke out of its long-standing range and soared to an eleven-month high of $8,976.50 per metric ton on the London Metal Exchange (LME).
These market dynamics put pressure on smelter margins, and China is especially exposed to them. Additionally, Jefferies thinks that the deficit phase would result in lower inventory and higher prices sooner than it had predicted.
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“The supply response to these higher prices will take too long to balance the market as the lead time to bring new capacity online is over 5 years for brownfields and over 10 years for greenfield projects,” the venture mentioned in a note.
Jefferies believes that demand destruction will be necessary for the market to balance if supply growth trails the expected growth in underlying demand.
But in order to achieve this demand destruction, a far higher price would be needed, and according to Jefferies, this price increase for copper will be necessary to encourage the creation of new greenfield projects in order to satisfy global demand.
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