Analysts say funds are likely to retreat further from the copper market due to sluggish demand in top consumer China and soaring inventories. This adds more pressure to prices, which have dropped around 12% since hitting record highs last month.
However, funds are expected to return as shortages of the metal arise from significant demand growth in the electric vehicle sector and new applications such as data centers.
Last month’s buying frenzy was fueled by a lower US dollar, making dollar-priced metals cheaper for holders of other currencies. Concerns about supply due to concentrate shortages also played a role.
Copper prices, used for making electrical wire, hit a record high above $11,100 per ton on the London Metal Exchange (LME) on May 20, a surge of nearly 25% in seven weeks. Prices are now around $9,700.
“Investors are still quite long on copper in terms of speculative positions. I think it is likely to keep falling,” said Dan Smith, head of research at Amalgamated Metal Trading. “China has hit a soft patch. That will feed into what investors do over the next few months.”
Copper also hit all-time highs above $11,460 per ton on the CME last month. However, money managers as of June 11 were still holding net long positions on CME copper, although these have fallen 27% from a three-year peak hit on May 21.
Prices will climb again only if demand from China picks up. “Otherwise, we are set to stay below $10,000. We need better fundamentals, not just speculative buying,” said broker Robert Montefusco at Sucden Financial.
China, representing about half of global copper demand estimated at around 26 million tons this year, has shown soft consumption partly due to its troubled property sector and weak manufacturing activity. “The pain point is construction in China,” said Eleni Joannides, an analyst at Wood Mackenzie, adding that a price level between $9,000 to $9,500 is more realistic for copper.
Tepid demand can be seen in copper stocks delivered to LME warehouses in Asia, mostly from China. These stocks, at 165,175 tons on June 20, have jumped nearly 60% since mid-May. Meanwhile, copper stocks in warehouses monitored by the Shanghai Futures Exchange (SHFE) have climbed nearly 90% since January to 322,910 tons.
“We see sluggish orders from the power and car sectors,” said a copper rod producer.
Despite lackluster demand, future prospects suggest that investors will remain in the market. Analysts at Citi expect copper demand from decarbonization to rise 90% to nearly 7.6 million tons in 2030 from 2024.
“About 18 to 24 months ago, we began to see significant investment in commodity teams by multi-manager, macro, and quant funds. This was clearly not a ‘fad’ as the investment was serious,” said Guy Wolf, Marex’s head of market analytics.
This trend explains why financial institutions are recruiting commodity experts. “We see a higher number of traders moving from one player to another,” said Franck Borgel, managing director at Societe Generale Corporate and Investment Banking. “I see more and more players which are properly set up to take advantage of market opportunities going forward.”
Source: Mining Weekly
