Jefferies raises base metals forecasts on demand outlook

Investing.com -- Jefferies has raised its base metals price forecasts, citing a shift from supply-driven to demand-driven market conditions.

The firm now projects LME copper prices will reach a peak of $8 per pound in 2030-31, up from its previous forecast of $6 per pound. The investment bank also increased its aluminum price forecasts. Both projections stand above consensus estimates.

Copper currently trades at $6.14 per pound. Jefferies expects prices to reach $6.50 per pound in 2027 before climbing to $8.00 per pound, equivalent to $17,600 per tonne, by 2031-32.

The revised outlook reflects anticipated demand growth from data center construction and power infrastructure development in the United States. The US ISM index has remained above 50 for five consecutive months following three years of weakness.

Jefferies noted that supply constraints continue to affect the market. The war in Iran has worsened some supply issues, according to the firm.

The investment bank argues that base metals have low price elasticity of demand. For products like white goods or electric vehicles, metals account for approximately 25% of manufacturing costs. A 25% increase in metals prices would result in a 5-6% increase in total manufacturing costs for these products.

For data centers, a 25% increase in metals prices would translate to a 2-3% increase in construction costs.

Jefferies identified potential risks to its outlook, including geopolitical factors or inflation that could weaken the economy. A recession triggered by an oil price spike or Federal Reserve rate hikes would negatively impact the sector.

The firm lists Freeport, Glencore, Anglo, Teck, and Alcoa as its top picks in mining.

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