Bank of America forecasts global copper consumption could contract by 18% year-over-year in 2020 should global GDP drop by an estimated 4.2% due to economic disruptions caused by the coronavirus pandemic.
Although a decline in copper purchases of this magnitude "would be devastating for the red metal and also the wider mined commodities complex," the bank said in a research note today, it also noted that Chinese demand for copper rebounded during April.
The easing of lockdown restrictions across many countries, the bank said, should also lead to an increase in copper purchases elsewhere.
The bank noted that fiscal stimulus packages, including China's 4 trillion yuan (US$559 billion) rescue package and Europe's Next Generation EU recovery plan worth ?,?750 billion (US$835 billion), could help drive up copper consumption.
The pandemic has led to a 6% reduction in copper mine and scrap supply, which helped to offset demand losses. While the copper market is now in surplus, the supply overhang is small, the bank said, leading it to increase its price forecast by 5.4% from US$5,333 per tonne copper to US$5,621 per tonne by year-end.
Zinc mine supply has declined by 5% so far this year, the bank reported, eliminating the supply overhang, and as there is no shortage of the refined material, continued pressure on the supply side could help to rebalance the market further.
As a consequence, the bank forecasts a new zinc price of US$1,969 per tonne by year-end, an increase of 3.3% from its previous estimate of US$1,906 per tonne.
Although the bank has forecast gold prices to fall by 0.7% from its previous estimate of US$1,695 to US$1,684 per oz. by year-end, it sees this as an entry point for investors even if the price rally pauses as markets return to normal. As a result, it still envisions gold hitting a high of US$3,000 per oz. over the next 18 months.
While investment in silver has been strong, weak industrial demand has capped a potential increase in prices, the bank said, although stronger offtake from manufacturers should help the metal. BofA has increased its price forecast for silver by 1.6% from US$16.60 to US$16.87 per ounce by year-end.
Meanwhile, falling global sales of vehicles have impacted demand for platinum group metals. The bank has cut its price forecast for platinum by 18.9% to US$862 per oz., down from US$1,008 per oz., and reduced its price forecast for palladium by 22.2% from US$2,824 per oz. to US$2,198 per oz. for 2020.
However, prices for platinum and palladium should remain well above the lows seen during the peak of the COVID-19 outbreak, the bank said.