Copper likely to rise on US Fed rate cut, demand from critical applications

After falling from its record high of $11,105 a tonne in May, a US Fed rate cut in the third quarter of 2024 and a push for the red metal in key applications such as electric vehicles (EVs) are likely to lift copper prices. , wind power, and solar power, analysts say.

“Except for the month of June, copper prices have been on a steady upward trend since the beginning of the year, reaching an all-time high of $11,105/ton on May 20, 2024. Several specific issues served to boost copper in H1 2024. ,” said research agency BMI, a unit of Fitch Solutions.

BMI said pessimism over the Chinese economy and a weaker US dollar pushed copper down to $9,515 in June. However, copper has since been able to rise to $9,944 on July 5. Currently, the red metal is priced at $9,915 for a three-month contract on the London Metal Exchange, while the cash price is at $9,762.

supply concerns

The Australian Office of the Chief Economist (AOCE) said copper prices have remained high in recent months, averaging around $9,700 a tonne in the June quarter – up 14 per cent from the start of the year. “The surge in prices reflects strong growth in global demand, which is expected to continue largely into the second half of 2024,” it said.

Copper prices hit a two-year peak in the first quarter, reflecting supply concerns and signs of stronger global industrial production, the World Bank said in its Commodity Outlook.

According to ING Think, the financial and economic analysis arm of Dutch multinational financial services firm ING, the latest commitment report from traders shows that investors increased their net bullish positions for copper for the second consecutive week by 9,156 lots for the week ended July 1. 85,601 lots have been made for this. 5, Highest net period since May 31, 2024.

A major reason for copper prices to rise again and analysts expect a rise in prices is the four-day meeting of the Chinese Communist Party (CCP) starting July 15.

focus on improvements

BMI said prices regained some lost ground in July on expectations of stimulus announcements during China’s third meeting, as well as support from the latest economic data leading to expectations of a rate cut by the US Fed soon. Market participants have increased. An injury.

Sandeep Sawant Desai, analyst at Angel One, said the market is eagerly awaiting the third CCP meeting, which is expected to focus on economic policy and reforms. It is also looking at upcoming data on China’s yuan debt and total social financing, which could provide information about future demand. ,

The World Bank said global demand for copper – a key input for construction and equipment manufacturing – is likely to grow only modestly this year, given slower global GDP growth and lingering challenges in China’s real estate sector. It reflects.

“Nevertheless, demand for copper will continue to grow driven by energy transition technologies – particularly electricity grid infrastructure, EVs and solar panels,” it said.

increase in demand

BMI said expectations of a rate cut by the US Fed, which caused the US dollar to weaken against higher levels in 2022 and 2023, served to boost copper demand in the greenback.

“Second, high-frequency indicators of global growth, particularly US growth, continued to surprise to the upside, creating positive sentiment towards copper demand. Third, Chinese manufacturing PMI data showed a mild improvement in March and April, boosting speculative holdings. Fourth, major Chinese copper smelters announced production cuts in March,” it said.

AOCE said China and the US will account for the bulk of this growth due to increased manufacturing activity and large investments in energy infrastructure.

BMI said it expects Chinese copper demand to grow 3.5 percent year-on-year in 2024, followed by 5 percent growth in 2023 as China’s manufacturing sector, key to metal prices, remains in recession.

“Our country risk team believes China’s housing slowdown is likely to persist for years due to excessive supply amid declining speculative demand,” it said. Outside China, the growth outlook is slow.

market loss

On the supply side, the copper market will move into deficit in 2024, resulting from a slowdown in the growth of refined copper production due to a shortage in copper supply, making the market tight. “We expect refined copper production to grow 3.1 percent annually in 2024, followed by 6.5 percent growth in 2023,” the research agency said.

Global copper mine production in 2024 will be driven by increased production from new mining projects as well as a production boom in countries facing operational challenges in 2023. “We expect the closure of First Quantum’s Cobre Panama mine in Panama to pose a downside risk to our global copper exposure. The mine outlook in 2024, while the start of production at the Udokan project in Russia as well as expansions 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, before rising in 2025, limited by production halts at major producers in South America and declining ore grades. It has estimated an annual increase of 5 percent in copper prices this year.

price forecast

AOCE said LME copper prices are forecast to average $9,500 a tonne in 2024 (up from $8,700 in 2023), rising to $9,970 in 2026.

“We are raising our 2024 copper price forecast to $9,600 from $9,200 per tonne as prices remain bullish due to investor sentiment leaning towards a US Fed rate cut in the third quarter of 2024,” BMI said. Are.”