ASX copper shares have broadly outperformed over the past year.
With soaring copper prices, industry heavyweight Oz Minerals Limited (ASX: OZL) has seen its share price surge 187% over the past 12 months.
The Sandfire Resources Ltd (ASX: SFR) share price is up 64% at that same time, delivering more than twice the gains posted by the S&P/ASX 200 Index (ASX: XJO).
But ASX copper shares could be in for some trouble. After widely rallying for much of the past year, the party may be nearing its end.
That's according to the latest supply and demand forecast from the International Copper Study Group (ICSG).
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Is the copper price a bubble?
Economics 101 dictates that when demand for an asset is strong and supply is tight, prices rise. Conversely, when the supply of an asset exceeds ready demand, prices tend to fall.
Many analysts continue to predict surging demand and constricted supplies of copper over the next several years. But ICSG revealed on Monday that the Group has a decidedly different outlook. It forecasts that copper supplies will exceed copper demand in the latter half of this year and into 2022.
Responding to that assertion, Daniel Briesemann, an analyst at Commerzbank AG, wrote in a note (sourced by Bloomberg):
This assessment of the ICSG contrasts sharply with those of many other market participants, who envisage another seriously undersupplied copper market this year. If the ICSG turns out to be right, the high copper price would not be justified from a fundamental perspective and should be noticeably lower.
ASX copper shares hoping Goldman Sachs is right
ASX copper shares (and their shareholders) will be pinning their hopes on Goldman Sachs' copper price forecast over ICSG's.
Citing an inelastic supply for commodities like copper (you can't dig a new mine overnight), along with soaring demand for the red metal from the global clean energy transition and infrastructure splurge, Goldman is decidedly bullish on copper.
Goldman forecasts copper will fetch US$11,000 per tonne inside of 12 months. It's currently trading for US$9,996 per tonne.
Looking further ahead, Goldman is predicting copper will reach US$11,875 per tonne in 2022 and edge still higher to US$12,000 per tonne in 2023.
If ICSG is correct, however, copper prices will likely be much lower. And ASX copper shares could see their share prices come under pressure.
ICSG doesn't foresee any significant increase in copper demand this year, while it forecasts an increase in new supply from copper mines. Although ICSG didn't provide any future price estimates, Bloomberg reports that the Group expects "the global refined copper surplus will reach 110,000 tons in 2022 from about 80,000 tons in 2021".
In 2020 there was a copper deficit of approximately 600,000 tons. That deficit helped drive a 62% increase in the price of copper since 3 January 2020.
Depending on which forecasts prove closer to the truth, ASX copper shares could be facing welcome tailwinds or battling unwelcome headwinds in the year ahead.
