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Commodity Price Forecast - Copper Prices: Downside Revision But Bullish From Spot Levels
14 Se p 20 18 Glo bal Co ppe r

FIT CH SO LUT IO NS CO P P ER FO RECAST S

Current 2018 2019 2020 2021 2022
USD/tonne, ave 6,038 6,700 7,100 7,200 7,250 7,300
Bloomberg Consensus Forecast - 6,752 6,710 6,718 6,979 7,370

N o te : C o p p e r T h r e e -Mo n th L ME c o n tr a c t. A c c u r a te a s o f S e p te m b e r 1 3 2 0 1 8 . S o u r c e : B l o o m b e r g , F i tc h S o l u ti o n s

Key View:

We have revised down our 2018 copper price forecast to an average of USD6,700/tonne from USD7,000/tonne previously, due to prices falling more than we
had expected over Q318.
We are bullish from spot levels and expect a recovery in prices over the remainder of the year
The escalating trade dispute between the US and China will present a key downside risk to our forecast.

Short-Term Outlook (three to six months)

We are revis ing down our copper price forecas t for 2018 from an averag e of USD7,000/tonne to USD6,700/tonne as prices have fallen more than expected
over Q318. The es calating trade dis pute between the US and China, ris ing g lobal protectionis m as well as a s trong er US dollar, reinforced by emerg ing
market weaknes s , res ulted in more than a 20% drop in copper prices between June and September 2018. Nevertheles s we believe this correction was mainly
s entiment driven as copper fundamentals remain larg ely tig ht as g lobal cons umption continues to outpace production. Furthermore, while trade tens ions
between the US and China continue to ris e, we view the US' threats to implement a propos ed rais ing of tariffs on USD200bn of Chines e products from 10%
to 25% over the coming weeks as unlikely to impact copper fundamentals in the s hort term (s ee ris k s ection at the end). As s uch we are bullis h from s pot
levels as we believe the copper price rout has overs hot fundamentals and we expect a price recovery over the remainder of the year.

Prices To Witness Recovery Ahead

LME 3-Month Copper Price (USD/tonne)

Source: Bloomberg, Fitch Solutions

We forecas t the g lobal refined copper balance to reg is ter a deficit of 251kt in 2018, driven by s us tained Chines e copper demand as the country's copper
s crap import ban bols ters hig her imports of refined copper. Furthermore, we note that Chines e demand for metals will be s trong er in H218 due to
our expectations for authorities to res ume s upport to the infras tructure s ector via tax cuts and g reater project approvals (See 'China Metals Demand Tracker:
Strengthening In H218 With Renewed Government Support', September 3 2018). Hig h frequency Bloomberg data points to a 5.3% y-o-y g rowth in copper

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cons umption from China over the firs t half of 2018. Other hig h frequency indicators als o point to a tig htening g lobal market, s upporting our view for hig her
prices towards the end of 2018. For ins tance the s pread between LME cas h and 3-month copper prices jumped to a neg ative USD16.3/tonne on September
12 from a low of USD40/tonne in Aug us t. Additionally, s tocks at LME warehous es continue decline, dropping from hig hs of 38kt in March down to 22kt as of
September 13, the lowes t level s o far this year.

Stocks In Decline Point To Tightening Market

LME Copper Stocks (tonnes )

Source: Bloomberg, Fitch Solutions

Long-Term Outlook

We expect pers is tent g lobal unders upply to keep prices on an upward trajectory, averag ing USD7,300/tonne by 2022. China's power and cons truction
s ectors , which account for approximately 46% and 9.4% of copper end-us e, res pectively, will keep demand g rowth elevated in the larg es t cons umer of
refined copper. Additionally, ris ing electric vehicle (EV) production and renewable energ y s ys tems will bols ter copper demand (s ee s ection below). Indeed,
our Autos team forecas ts g lobal EV s ales to g row fivefold between 2017-2027, reaching 5.1 million units (see 'Global EV Forecasts To 2027: Top 10 Themes',
March 8). We forecas t the g lobal refined copper deficit to remain in deficit until 2023, when the market will s hift into a s urplus .

Bullish Picture For Copper

LME Copper - Averag e Price Forecas ts & Futures Curve (USD/tonne)

Note: Consensus is Bloomberg consensus. Source: Bloomberg, Fitch Solutions

This re po rt fro m Fitch So lutio ns Macro Re s e arch is the pro duct o f Bus ine s s Mo nito r Inte rnatio nal Ltd, UK Co mpany re g is tratio n numbe r
0 176 349 0 ( ‘BMI’) , and/o r Fitch So lutio ns Gro up Ltd, UK Co mpany re g is tratio n numbe r 0 8 78 9 9 39 ( ‘FSG’) . BMI and FSG are bo th affiliate s o f
Fitch Rating s Inc. ( ‘Fitch’) . BMI and/o r FSG is /are s o le ly re s po ns ible fo r the co nte nt o f this re po rt, witho ut any input fro m Fitch Rating s .
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analys ts do no t s hare data o r info rmatio n with Fitch So lutio ns Macro Re s e arch.
Accelerating Demand Growth To Drive Undersupply

Global refined copper demand will increas ing ly outpace production as s olid demand from China's power and infras tructure s ectors and ris ing g lobal
electric vehicle production deepen the g lobal deficit over the coming years . We forecas t the g lobal refined copper balance to reg is ter a deficit of 251kt in
2018, and remain unders upplied throug h 2023. Over the long er term, we expect g lobal copper deficit to g radually s hrink and the market to be broadly
balanced over 2024-2027, as s trong prices incentivis e producers to ramp up output and inves t in new projects .

China's refined copper production growth will reflect a slight slowdown y-o-y in 2018, to 4.0% growth, as tightening environmental standards
result in out-dated capacity shutting down. Our growth outlook for the country's refined copper output remains muted by historical standards,
increasing from 8.8mnt in 2018 to 11.4mnt by 2027, averaging 3.1% annual growth. This signals a noticeable slowdown in comparison to an
average annual growth rate of 9.2% over the previous ten-year period.
China's refined copper consumption growth rate will slow slightly in 2018, to 3.2%, as more stringent efforts to curb real estate speculation and
relatively weaker public infrastructure spending growth weigh on the country's metal demand. Nonetheless, China will remain the dominant
global user of copper by a significant margin, with consumption levels increasing from 11.7mnt in 2018 to 16.0mnt by 2027.
Copper demand will increasingly benefit from the rise of the electric vehicle market and growing popularity of renewable energy sources. The
conventional internal combustion engine used in motor vehicles typically contains about 20kg of copper compared to 80kgs used in an electric
vehicle. Additionally, both wind and solar power generation use greater copper per unit of electricity produced than non-renewable energy
sources. For example, coal-fired power stations contain about 2kg/kW of copper, whereas solar utilises about 5kg/kW.

Market To Remain Tight Ahead

Copper Production Balance ('000 tonnes ) & Stocks -To-Us e (%)

e/f = Fitch Solutions es timate/forecas t. Source: USGS, Fitch Solutions

Clic k he re to e xplore da ta

GLO BAL CO P P ER SUP P LY, DEMAND & P RICE FO RECAST S

Indicat o r 2015 2016 2017e 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f
Co ppe r P rice , Thre e -mo nth, USD/to nne , ave 5,49 3.0 4,8 70 .0 6 ,20 0 .0 6 ,70 0 .0 7,10 0 .0 7,20 0 .0 7,250 .0 7,30 0 .0 7,250 .0 7,20 0 .0 7,220 .0 7,240 .0 7,26 0 .0
Co ppe r P ro ductio n, tho us and to nne s 22,0 15 22,49 4 22,9 32 23,46 0 23,9 9 7 24,56 8 25,150 25,737 26 ,344 27,0 36 27,9 0 1 28 ,8 6 1 29 ,9 26
Co ppe r Co ns umptio n, tho us and to nne s 21,8 6 3 22,278 23,179 23,6 0 7 24,158 24,713 25,26 1 25,736 26 ,246 26 ,9 22 27,79 2 28 ,747 29 ,79 9
Co ppe r Sto cks -to -Us e , % 6 .8 7.7 6 .3 5.6 4.8 4.1 3.5 3.5 3.8 4.1 4.4 4.6 4.9
Co ppe r P ro ductio n Balance , tho us and to nne s 151 216 -246 -146 -16 1 -144 -111 0 98 113 10 9 113 126

e / f = F i tc h S o l u ti o n s e sti m a te / fo r e c a st. S o u r c e : N a ti o n a l S o u r c e s, F i tc h S o l u ti o n s

Risks To Price Outlook

The key downs ide ris k to our copper price forecas t is the es calating trade dis pute between the US and China. In particular the US threat to rais e tariffs to 25%
from 10% on USD200bn worth of Chines e products could res ult in further deterioration of market s entiment, pos ing downs ide ris ks to prices over the

This re po rt fro m Fitch So lutio ns Macro Re s e arch is the pro duct o f Bus ine s s Mo nito r Inte rnatio nal Ltd, UK Co mpany re g is tratio n numbe r
0 176 349 0 ( ‘BMI’) , and/o r Fitch So lutio ns Gro up Ltd, UK Co mpany re g is tratio n numbe r 0 8 78 9 9 39 ( ‘FSG’) . BMI and FSG are bo th affiliate s o f
Fitch Rating s Inc. ( ‘Fitch’) . BMI and/o r FSG is /are s o le ly re s po ns ible fo r the co nte nt o f this re po rt, witho ut any input fro m Fitch Rating s .
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coming weeks . Broadly s peaking , copper prices are s een as an important indicator of g lobal trade, s o the deterioration of free trade between the two
larg es t g lobal economies is prone to impact copper prices neg atively as inves tors s hift away from ris k-on as s et clas s es s uch as commodities .

The new round of propos ed tariffs would targ et electrical equipment or appliances coming into the US from China. Thes e g oods account for approximately
7.5% and 14.6%, res pectively, of China's refined copper end-us e. The US is als o the larg es t or s econd larg es t importer of thes e Chines e g oods , s o the new
propos ed round of tariffs targ etting thes e g oods would weig h on thes e s ectors and, in turn, China's refined copper demand, althoug h this would likely only
impact market fundamentals well into 2019 (See 'Threatened US-China Trade Tariffs To Hit Cons umers Next', Aug us t 22).

This re po rt fro m Fitch So lutio ns Macro Re s e arch is the pro duct o f Bus ine s s Mo nito r Inte rnatio nal Ltd, UK Co mpany re g is tratio n numbe r
0 176 349 0 ( ‘BMI’) , and/o r Fitch So lutio ns Gro up Ltd, UK Co mpany re g is tratio n numbe r 0 8 78 9 9 39 ( ‘FSG’) . BMI and FSG are bo th affiliate s o f
Fitch Rating s Inc. ( ‘Fitch’) . BMI and/o r FSG is /are s o le ly re s po ns ible fo r the co nte nt o f this re po rt, witho ut any input fro m Fitch Rating s .
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