After having dropped from their record high of $11,105 a tonne in May, copper prices are likely to gain on the US Fed cutting interest rates in the third quarter of 2024. Demand for the red metal in critical applications such as electric vehicles (EVs), wind power, and solar energy will also aid the uptrend, say analysts.
“Copper prices have been on a steady upward trend since the start of the year, barring the month of June, with a historic high of $11,105/tonne reached on May 20, 2024. A number of idiosyncratic issues worked to boost copper in H1 2024,” said research agency BMI, a unit of Fitch Solutions.
Pessimism over the Chinese economy and a weak US dollar pulled copper down in June to $9,515, said BMI. However, since then copper has been able to make headway to $9,944 on July 5. Currently, the red metal is quoted at $9,905 for the three-month contract on the London Metal Exchange, while the cash price is $9,696.
Supply concerns
The Australian Office of the Chief Economist (AOCE) said copper prices have continued to trend higher in recent months, averaging about $9,700 a tonne in the June quarter — up 14 per cent since the start of the year. “The surge in prices reflects strong growth in global demand, which is expected to largely persist over H2 2024,” it said.
The World Bank, in its Commodity Outlook, said copper prices have reached a two-year peak in the first quarter, reflecting supply concerns and signs of firmer global industrial production.
According to ING Think, the financial and economic analysis wing of Dutch multinational financial services firm ING, the latest commitment of traders report shows that investors boosted net bullish positions for copper by 9,156 lots for a second consecutive week to 85,601 lots for the week ending July 5, the highest net long since May 31, 2024.
A major reason for copper regaining and analysts expecting prices to rebound is the four-day plenum of the Chinese Communist Party (CCP) scheduled to be held from July 15.
Focus on reforms
BMI said prices have regained some lost ground in July on the back of hopes of stimulus announcements during the third plenum of China, as well as increasing market participants expecting a rate cut by the US Fed sooner rather than later in light of fresh economic data supporting a cut.
Saish Sandeep Sawant Dessai, Analyst at Angel One, said the market is keenly awaiting the CCP’s third plenum, which is expected to focus on economic policy and reforms. It is also looking out for upcoming data on China’s yuan loans and total social financing, which could provide insights into future demand. .
The World Bank said global demand for copper — a key input for construction and equipment manufacturing — is likely to increase only modestly this year, reflecting subdued global GDP growth and the protracted challenges in China’s real estate sector.
“Nonetheless, the steady increase in the demand for copper, driven by energy transition technologies—particularly electricity grid infrastructure, EVs, and solar panels — is set to continue,” it said.
Demand growth
BMI said expectations of a rate cut by the US Fed, which led to a weakening of the US dollar compared to the highs of 2022 and 2023, worked to boost demand for copper priced in the greenback.
“Second, high-frequency indicators of global growth, especially US growth, continued to surprise to the upside, building positive sentiment towards copper demand. Third, Chinese manufacturing PMI figures showed a mild recovery in March and April, boosting speculative holdings. Fourth, major Chinese copper smelters announced production cuts in March,” it said.
The AOCE said China and the US will account for the bulk of this growth, driven by rising manufacturing activity and large investment in energy infrastructure.
BMI said it expect Chinese copper demand to grow by 3.5 per cent year-on-year (y-o-y) in 2024 compared to a 5 per cent rise in 2023 as China’s construction sector, critical for metal prices, remains in the doldrums.
“Our Country Risk team believes that China’s housing downturn is likely to last years, driven by an oversupply amid waning speculative demand,” it said. Outside of China, the growth outlook is subdued.
Market deficit
On the supply side, the copper market to tip into deficit in 2024, resulting from a slowdown in refined copper production growth due to copper concentrate supply constraints, leaving the market tight. “We expect refined copper production to grow by 3.1 per cent yoy in 2024, compared with 6.5 per cent growth in 2023,” the research agency said..
Global copper mine output in 2024 will be driven by increased production from new mining projects along with a rebound in output in countries that faced operational challenges in 2023. “We expect First Quantum’s Cobre Panama mine closure in Panama to pose downside risks to our global copper mine outlook in 2024, while the production starts at the Udokan project in Russia as well as expansion at the Kamoa-Kakula mine in the DRC and Quebrada Blanca in Chile could shift the balance of risks to the upside,” it said.
The World Bank said copper supply growth is expected to be modest this year, limited by production stoppages and declining ore grades in major producers in South America, before picking up in 2025. It projected a 5 per cent yoy increase in copper prices this year.
Price forecast
The AOCE said LME copper prices are forecast to average about $9,500 a tonne in 2024 (up from $8,700 in 2023), rising to $9,970 in 2026.
BMI said, “We are raising our 2024 copper price forecast from $9,200/tonne to $9,600, as prices continue to be led by investor sentiment that is tilted towards a US Fed rate cut in Q3 2024.”