BofA Global Research Head of Metals Research Michael Widmer joins Morning Brief to discuss the recent rise in commodity trading, specifically in precious metals like gold (GC=F), silver (SI=F), and copper (HG=F), and why he feels bullish on this sector.
“This is firmly a buy-the-dip market. I think what we need to see at this junction is maybe a little bit stronger Chinese demand, maybe a little bit stronger demand from the Western consumers as well. And if that comes through, I think if we had a dip now, that would take us then very swiftly back up,” Widmer affirms.
When asked about the Chinese demand for copper, Widmer claims: “So you have the green industries which have carried the copper market in China. So that’s… solar, that’s wind, that’s the EV side of things. And then a lot of the traditional economy, like the housing market, actually, subtracting from the copper demand. So what would make me much more comfortable at this junction is if we continue to see the green spending coming through while we have a little bit of a lower drag from the housing market.”
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This post was written by Nicholas Jacobino
Video Transcript
Copper prices are surging to record highs.
You certainly have seen a lot of buying action when it comes to commodities.
When you take a look at a price of gold, gold futures also up 16% on the year.
So is now a good time to get into the raw material space or are we set to see a pullback soon?
Joining us?
Now, we want to bring in Michael Widmer.
He is Bank of America Global Head of Metals of Research, Michael.
It’s great to talk to you here.
So first, let’s start with this massive run up that we’ve seen in the price of copper.
Is that going to slow down anytime soon?
And if not, how high could we see prices climb?
I think there’s two elements to that, to that massive run up.
I think the first really is a um kind of a supply element here.
And you see that in the chart that you’re putting up there.
Uh The rally actually started um earlier this year, I think that was on the back of announced production cuts by Chinese smelters and Refiners on the back of um very tight, very tight mine supply that story, I think still stands.
I think the rally over the past a few days was really down to a short squeeze on, on CME that has spilled over into, into other exchanges.
On the LA one look, uh short squeezes normally uh resolve themselves and then you see uh reduced upside.
So I think that’s something that is potentially uh kind of putting a little bit of a on the, on the immediate rally.
But overall look, I think the the structural bull case for the copper market remains uh remains in place.
So when I look 1218 months out, do I think the price is straight higher compared to where they are right now?
Absolutely.
So, so if we do see normalization within this trade, what does that look like from a price action perspective?
I mean, look, we have uh we have uh prices actually below 10,000 for the uh for the current quotas in in terms of our forecast.
So about 10% below they are where they are right now.
But this is firmly by the dip market.
I think what we need to see a disjunction is maybe a little bit stronger Chinese demand, maybe a little bit stronger demand from the Western consumers as well.
And if that comes through, I think if we had a dip now that would take us and very swiftly back up.
It is by the by the dip market and then 2025 we have another price forecast of around $12,000 per ton.
So that’s about 20% above the spot level.
What industries would you need to hear are prioritizing production within China in order to have a sense of confidence that that region was going to step in with larger purchases for copper.
It’s actually a very, it’s a very uh bifurcated market at the moment.
So you have got the green industries which have carried the copper market in China so that solar produce solar, that’s wind, that’s the ev side of things.
And then a lot of the traditional economy like the housing market actually uh subtracting from the copper demand.
So what would make me much more comfortable at this junction is if you continue to see the green spending coming through while we have a little bit of a lower drag from uh from the housing market, that’s something that hopefully uh as the credit is coming along nicely.
The housing market is a lot of measures now being put in place uh that hopefully uh slots into place too.
And then I think we have a a stronger market going forward sentiment, I think is really important for the wider economy.
I think one of the reasons why demand also remains subdued in the traditional economy is that uh there is a lack of confidence in the economy and that has been the case in the end of COVID Michael when it comes to the out performance that we’ve seen in copper relative to gold when it comes to that ratio, the loftiness that we’re seeing there.
Is that something that you think can continue or what do you think that gap then is going to look like from here on out?
That’s an interesting question because what we have seen actually across a lot of the commodities is that some of the traditional relationships have started breaking down.
So last year, for instance, look, copper should have traded a third below the level where it was.
But it didn’t taking PM is for instance, as a reference point, but it didn’t because we actually had that energy transition span.
So this is a very different copper line.
We have a structural uh support a structured BCA for the copper market.
So on that, on that angle and keeping in mind the dislocation that we already saw last year, I think that that Rachel can continue to dislocate.
I think Copa looks fundamentally over the next two or three years.
Very strong.
You know, with that in mind, I guess that would fade any risk from the year of global elections that we’re going to be watching this year.
I mean, is there anything that could upend the import export equation right now?
For copper, at least from a geopolitical perspective?
Yes.
And I think that’s something that we have to follow quite closely.
I think trade disputes are never great for uh for global growth.
Granted.
When you’re looking at the US economy, uh investment in non residential construction has been very strong.
Car production sensation is very strong and a lot of that has been linked particularly on the construction side to the Biden uh to the Biden uh policies.
Now, if we are uh if you continue that reshoring uh or that on shoring, I think that investment will come through and ultimately also the manufacturing demand.
But if that reshoring comes, as we increasingly see now with uh trade disputes and uh tariffs and barriers, then I ultimately, that will have an impact potentially on, on global growth.
And I think it will have an impact if China is on the receiving side on that initially on uh potentially the sentiment in China.
So the way all of that plays out is worth following, I think what we hear at the moment uh in the US is there’s a broad bipartisan support um to push back against some of the Chinese uh Chinese dominant and that makes it even more important to follow quite closely what’s happening.
Thanks so much for taking the time here today, Michael Widmer, who is the b of a Global research head of metals research.
Appreciate it.
Thank you.
Thanks.