The fundamentals in the copper market suggest upward pressure for copper prices for the remainder of 2024.
Copper is a versatile metal, which is used in electrical wiring to renewable energy infrastructure.
Expectations about more stimulus packages in China and rate cuts in the US are supporting copper prices at the moment.
But, the question remains whether copper prices can scale back over $10,000 per ton in the upcoming months.
Copper prices around the world
China, a major market for copper, experienced a mild recovery in its physical market during August.
“The copper grade A cathode premium in Shanghai saw an uptick, reflecting improved market conditions,” according to a report by Fastmarkets.
The recovery was driven by expectations of better import arbitrage conditions post-LME decline, but challenges remain due to fluctuations in prices, Fastmarkets said in a report.
In the US, copper prices remained stable, largely due to the seasonal summer lull, with premiums holding steady in the Midwest, Fastmarkets said.
However, upward pressure in prices are likely in the coming months due to supply disruptions and demand for the red metal in green energy projects.
In Germany, the biggest copper consumer in Europe, prices remain subdued due to sluggish demand from the automotive and manufacturing sectors. Ample stocks also weigh on sentiments.
Outlook for rest of 2024
Copper prices are likely to rise in October-December if global fundamentals continue to support sentiments. Prices could scale back above $10,000 per ton from $9,777.50 per ton at present on the London Metal Exchange (LME).
China’s finance ministry is set to hold a press conference on Saturday to outline further economic stimulus measures for the country.
China is one of the top consumers of base metals in the world. More support for its economy is likely to prop up demand for commodities.
Last month, Beijing had announced a slew of measures for its economy, including interest-rate cuts and targeted support for the property sector, which sparked a rally across industrial metals., which helped prices to rise 7.6% alone in September. Prices had also moved past the psychologically-crucial barrier of $10,000 per ton level before giving up the gains.
The price movement suggests copper prices are increasingly susceptible to China’s economic situation.
Among industrial metals, copper and iron ore were the standout performers last month.
Source: LME, SGX and ING Research
Additionally, expectations of the US Federal Reserve cutting interest rates in its November meeting is also lending support to copper.
Even though the market does not expect the Fed to cut interest rates by a larger percentage in its upcoming meetings, the smaller quantum of cuts is also bullish for commodities.
Lower interest rates bode well for non-yielding commodities such as copper. It also increases the liquidity in the system, while borrowing costs decline, thereby investments in commodities such as copper also increase.
At its last meeting, the Fed had cut interest rates by 50 basis points.
Analysts at Fastmarkets said in a report:
In China, the Shanghai premium should continue its recovery in the final quarter of the year, largely due to the improved sentiment following the substantial stimulus measures implemented by the country’s authorities.
More stimulus and further easing needed in China
Analysts at ING Group said that the economic stimulus announced by China last month were a step in the right direction.
Lynn Song, ING Group’s China economist, said in a note”
There is still room for further easing in the months ahead, and if we see a large fiscal policy push as well, momentum could recover heading into the fourth quarter.
The economist believes that the property sector in China has to stabilise to support growth in copper demand. The property sector is crucial for industrial metals.
“First, we need to see prices stabilise if not recover. Second, we need to see excess housing inventories come down towards historical norms. Until then, the drag on growth will continue,” according to Song.
Longer-term outlook for copper prices
Beyond 2024, the long-term price trajectory for copper seems bullish, especially with more emphasis on green transition, which is likely to generate more demand for the red-metal.
“For instance, by 2025 the copper grade A cathode premium in Rotterdam is projected to rise by approximately 25%, reflecting tighter regional fundamentals and a recovering European market,” analysts at Fastmarkets said.
Refined copper consumption is also expected to rise significantly in the next decade as the world transitions to electric vehicles from fossil fuel automobiles.
Copper will also be increasingly used in renewable energy infrastructure, which is likely to drive up demand, according to experts.
“The anticipated structural supply deficit will likely necessitate increased investments in production facilities, further underpinning a bullish outlook for copper prices,” according to Fastmarkets.
In August, copper ore imports had surprised on the upside and, at almost 2.6 million tons, reached the second-highest monthly figure of all time. This dampened fears that a shortage of copper ore could limit the recently rapidly expanding Chinese copper production, according to Commerzbank AG.
Barbara Lambrecht, commodity analyst at Commerzbank, said in a report.:
Should the September figures disappoint and make August appear to have been an outlier, this should support the copper price.
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