Reflecting on the Copper Price Cycle – How Good Are Consensus Forecast
Where we are in the commodity price cycle is one of the most often discussed and relevant questions for the industry and in this Issue of The Alchemist we consider the copper price movements since January 2016 in order to evaluate the usefulness of the methodology outlined in Issue 27 as a forecasting tool and reflect on the copper price cycle.
Using Fourier Analysis in determining the periodicity and duration of underlying price cycles – which manifest in long term trends – the forecast derived provides a means to predict periods of longer and shorter cyclical super-pricing that consensus and more typical long-term forecasting does not.
In 2016 Copper prices were at 7 year lows of US$4,500/t with the consensus copper price outlook remaining subdued on the back of weak demand growth and expectations of future oversupply following commissioning of large scale developments. Since, we have witnessed the bottom of the copper price cycle and a return to price levels coincident with our proxies for the sub-cycle and supercycles. The sub-cycle is expected to remerge in 2030, with price levels expected to reach above $7,000/t (2016 real dollars). The longer supercycle suggests a downwards long‑term trend on a decadal scale, with support at the $4,000/t level (2016 real dollars), quite possibly as supply and technology makes the historically inevitable catch-up with the latest version of a demand surge, before starting the cycle (or cycles) again.