Copper’s wild ride: From record highs to fresh lows amid market shifts

Copper’s Ride: Copper prices have experienced a dramatic rise of approximately 31 per cent over the past year and a 25 per cent increase year-to-date, surpassing the $11,000-per-ton mark. This notable surge has captured the attention of investors and traders alike. However, the rally was short-lived as prices have recently corrected sharply, falling to a four-month low of around $9,000 per ton. This decline reflects mounting concerns over Chinese demand, driven by slower economic growth in the second quarter and a lack of substantial government stimulus measures.

Market dynamics and demand concerns

The recent volatility in copper prices is attributed to a mix of real market shifts and speculative trading. The International Copper Study Group (ICSG) reported a global refined copper market surplus of 65,000 metric tons in May, up significantly from the 11,000 metric tons recorded in April. Preliminary data for the first five months of 2024 indicates a substantial surplus of about 416,000 metric tons.

China’s Influence on Prices
China remains a focal point for copper market dynamics. The country’s economic slowdown and increased inventories have raised concerns about weakening domestic demand. Notably, China’s unwrought copper imports fell to a 14-month low, reflecting both high global prices and weak domestic demand. Despite this, China's refined copper exports reached record levels in June, suggesting a complex picture of strong imports contrasted with rising exports.

Global Supply and Inventory Trends
Supply-side factors have also influenced copper prices. Inventories in London Metal Exchange (LME) warehouses have reached their highest levels since September 2021, and Shanghai copper stocks have surged by 240 per cent year-on-year to a four-year peak. These increases in inventory levels signal ample supply, which, coupled with weak demand, has pressured prices downward.

Outlook and Future Expectations
Looking ahead, market participants are closely watching signals from the Federal Reserve and upcoming U.S. economic data. Anticipated rate cuts by the Fed and potential inventory reductions later in 2024 could provide some support to metal markets. Despite current bearish sentiments, the long-term outlook for copper remains optimistic due to strong fundamental demand driven by sectors such as electric vehicles, automation, and renewable energy.

Investment Strategy
In light of current market conditions, investors are advised to buy on dips, with expectations of copper prices reaching new highs in the future. On the London Metal Exchange (LME), prices may target levels above $11,100, potentially reaching $11,500. For the Multi Commodity Exchange (MCX), prices are expected to range between Rs 1,000 and Rs 1,020, with buy recommendations towards $8,500 on the LME and Rs 750 on the MCX.

The copper market is navigating through a phase of significant challenges, including weak demand in China and rising global inventories. However, medium- and long-term prospects remain positive, supported by ongoing global energy transition initiatives and technological advancements. Investors should stay informed and consider strategic buying opportunities in anticipation of future market recoveries.