A glimmer of hope for an economic recovery in China has sent the price of copper soaring following a rekindling of interest from investors. On Monday, both zinc and copper prices hit a four-month high on the London Metal Exchange.
In fact, copper prices rose on both the LME and the Shanghai Futures Exchange. Three-month copper on the LME climbed 0.9% to US $10,076.50 per metric ton by 04:47 GMT after reaching $10,158, its highest level since June 7. Currently, it appears poised for its best monthly gain since April.
On the Shanghai Futures Exchange, the most-traded November copper contract gained 0.5% to $11,259.89 (78,960 yuan) per ton, hitting its highest level since July 16 at 79,460 yuan. As with the LME, this index is also set for the best monthly gain since April.
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China and U.S. Efforts Support Rising Price of Copper
China’s recent stimulus measures, including a 50-basis-point cut to bank reserve requirements and lower mortgage rates, have been positively received by copper market analysts. These initiatives aim to boost economic activity, particularly in the property and construction sectors, which are critical drivers of copper demand due to their extensive use of the metal.Copper, as we know, is an essential component in electrical goods, including housing wiring.
Adding to the bull run is the recent interest rate cut by the U.S. Federal Reserve, which has also had a positive effect on the price of copper. When the Feds drop interest rates, the dollar tends to weaken against other currencies. Investors continue to watch closely to see if these efforts will counteract recent weaknesses in Chinese copper demand and lead to a significant rise in consumption.
A Closer Look at China’s Stimulus
China recently introduced new policies to boost its economy, including lowering interest rates and reducing reserve requirement ratios. However, some experts believe that China’s massive stimulus package may not fully address the need for fiscal support to revitalize its economy. In their view, the government’s focus on infrastructure over consumer welfare and the troubled real estate sector may hinder a widespread economic recovery.
Despite such reservations, the rest of the world tends to welcome any economic impetus, especially in countries like China and India. A report by SandP Global said copper prices could move upward in the long run because of the clean energy transition. The report also stated that copper demand could double, touching 50 million metric tons by 2035, with much of the demand coming from the U.S., China and Europe.
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A Note of Caution
Are copper bulls being overly optimistic? The International Copper Study Group (ICSG) recently updated its supply and demand forecasts, predicting a significant global surplus of 469,000 tons this year and 194,000 tons in 2025. This oversupply is more than double what April’s forecast.
That said, the prediction comes with some caveats. The most notable example has to do with how analysts calculate China’s apparent demand, which relies on reported data like stock levels and trade flows. This method can’t account for shifts in strategic or commercial inventories, which are crucial in assessing market balance. However, the revised surplus forecasts for 2024 and 2025 largely stem from changes in supply, which is more transparent.
Production Expected to Grow at a Faster Pace
Meanwhile, experts anticipate that copper mine production will grow by 1.7% in 2024, an upgrade from the 0.5% forecast in April. They also predict this will accelerate to 3.5% in 2025 as major mines like Kamoa-Kakula in the Congo, Oyu Tolgoi in Mongolia and Russia’s new Malmyzhskoye mine ramp up. Meanwhile, forecasts state that refined metal production will grow by 4.2% this year, a boost from April’s 2.8% prediction.
But while demand is currently the main driver of copper prices in the short term, supply issues continue to influence market dynamics. Reports of mine disruptions in key copper-producing nations like Chile and Peru, for instance, are adding to concerns. Combined with demand growth from stimulus measures, these constraints could tighten the copper market.
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