Alongside recovering Chinese demand, Citi Research projected supply to move into deficit in 2017 for the first time in six years.
"Copper supply set to under-perform demand for much of the next half decade. As the global economy departs from several years of stagnation, so too does the outlook for copper pricing. The combination of stronger than expected Chinese demand, a clear lack of visible copper inventory build, an end to cost deflation, and the U.S.-centric reflation story after the Trump election victory sparked positive price momentum through the latter stages of 2016," wrote Citi analysts.
After hitting historic highs in February 2011 at over $10,000 a metric ton, copper prices went on a prolonged slide, reaching seven-year lows around $4,330 a ton in January 2015 due to slowing Chinese demand growth and burgeoning supply as producers ramped up output in expectations of the demand growth witnessed from 2006-2011. However, Chinese demand growth slowed.
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China will drive copper demand, spurring a supply deficit for much of the next five years, says Citi Research analysts.
The supply deficit will prompt copper prices to move above $6,000 a ton in the second half of 2017, with peaks of close to $7,000 a ton before the end of the year, and above $8,000 a ton before the end of 2020, Citi predicted.
On the demand side, there's now little to worry about, since the dramatic crunch in capital expenditure cuts since an extended broad-based commodities slump hit the market in the summer of 2014. This has "eviscerated" the copper project pipeline for much of the remainder of the current decade, and will set the market up for the most sustained price rally since 2010.
In 2016, China's real copper consumption likely rose 5.7 percent, in the high end of the projected 3-7 percent range, Citi wrote.
"The much-vaunted wall of supply that hit copper in 2016 failed to drown the red metal in excess supply," the Citi note added.
For 2017, Citi said it expects Chinese copper demand to moderate to between 3 to 4 percent, driven by power grid improvement plans and vehicle sales.
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