China's sudden pandemic policy U-turn, easing tight COVID-19 restrictions in late 2022, fired up copper prices to a seven-month high in recent trading and helped raise bullish expectations for the industrial metal in 2023.

The price of copper hit $9,107.50 per tonne on Jan. 11, up 27.2% from a 2022 low of $7,160/t on July 14, according to S&P Global Market Intelligence data. The recent price climb returned copper to levels last seen in June 2022.

China's relaxation of pandemic restrictions raises the prospect of a faster-than-anticipated economic recovery in copper-hungry China, which accounts for about half of global copper demand. Taken along with government stimulus of the country's metal-intensive property and infrastructure sectors, copper prices could be on the rise in 2023.

Tight global copper supplies make the market volatile and magnify any changes in demand from China or elsewhere, foretelling future volatility. Prices could plummet should a surge in COVID-19 cases in China remain stubbornly high.

"The 180 done by the Chinese government regarding COVID, its property sector and stimulus in general will undoubtedly be commodity bullish in 2023, not least for industrial metals given the focus on infrastructure spending and energy transition projects," Ole Hansen, head of commodity strategy at investment bank Saxo Bank, told S&P Global Commodity Insights via email.

Hansen said Saxo Bank is bullish on both precious metals and industrial metals for 2023 due to potentially peaking interest rates, a softer dollar, economic recovery in China and a fraught copper supply outlook.

"All in all, given the price level of copper at the moment, there is a strong argument that prices may lift [year over year]," Natalie Scott-Gray, senior metals analyst at brokerage StoneX, said in an email. Copper prices averaged $8,788/t in 2022, Scott-Gray noted.

Impacts of recession talk, copper supply

Widely repeated forecasts of a recession in developed countries worried some analysts about copper's year ahead, but others believe a modest downturn will not hold the red metal back.

"We view the possibility of a widespread global recession as a non-trivial probability," Dalton Baretto, an analyst at investment bank Canaccord Genuity, said in a Jan. 10 note. "That said, from a commodity consumption perspective, we do not believe this is overly material as we do not expect China to be part of this recession. Perhaps perversely, a global recession could result in the Chinese government actually ramping up stimulus to offset a drop in export orders, which could be a net positive for commodities."

Meanwhile, analysts have flagged persistently low copper inventories as setting up the market for higher prices in 2023. For example, London Metal Exchange copper warehouse stocks totaled 84,550 tonnes on Jan. 11, down from a 2022 peak of 180,925 tonnes on May 17, according to Market Intelligence data. Overall, global copper inventories could only cover a meager three days of demand, analysts noted.

"For 2023, the impact of insufficient inventory cover has potential to be the defining issue for industrial metals markets," Colin Hamilton, an analyst with investment bank BMO Capital Markets, said in a Jan. 5 note.

Hamilton pointed to the possibility that the typical restocking period for industrial metals in the first quarter may prove shorter than usual in 2023, with an early Lunar New Year. The celebration typically slows down industrial demand in China, but factories could be back online faster in 2023 than in other years, Hamilton said.

"Thus, the period of inventory build in [the first quarter] may be shorter in duration than is normal, over and above starting from a lower level," Hamilton said. "This raises the potential for inventory scarcity into the typical peak demand period of April-May, when inventories typically draw."

Such scarcity amid rising demand could leave the market susceptible to short squeezes and support higher metal price premiums, Hamilton said.

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