Quarterly Outlook
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John J. Hardy
Global Head of Macro Strategy
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Copper’s resilience despite China weakness
Ole Hansen
Head of Commodity Strategy
Key points
- Copper continues to consolidate amid recent weakness that was triggered by last months premature surge to record highs
- Having retraced around half the strong rally focus is turning to China and data reflecting the state of the physical market
- The long-term argument for higher copper prices has not gone away, supported by expected robust demand towards the electrification of the world
Copper's recent consolidation follows a premature surge to record highs last month, driven by momentum-chasing speculators in the London and New York futures markets. This rally deterred demand from physical buyers, particularly in China, the top consumer of copper, where recent data has indicated weakness. Despite setbacks, the industrial metal sector is up around 9% this year, with copper and tin being the best performers.
We believe the market direction is correct but question the timing, as fundamental support is needed for sustained price increases. Recent mentions of AI and anticipated power demand for data centres attracted new investors to copper, though some may not fully understand commodity dynamics, where prices are driven by current supply and demand balances.
The copper squeeze, led by the High Grade Copper future in New York, occurred as Chinese stockpiles reached four-year highs, reminiscent of the Covid demand collapse. Additionally, the premium Chinese importers pay over LME copper has disappeared, indicating the rally was exchange-driven, not demand-driven from China. The offshore Chinese yuan near a seven-month low might incentivise stockpiling but makes imports more expensive, potentially deterring buyers.
Long-term fundamentals support robust future demand for copper from electric vehicles, grid infrastructure, and AI data centres, while production may struggle to meet demand, leading to potential supply deficits. Miners need higher prices to justify investments in new discoveries, which take over a decade to yield returns.
Following a near 50% retracement of the rally from the October 2023 low, the High Grade Copper contract has found support ahead of USD 4.35 per pound, the January 2023 high, with resistance currently in the USD 4.55-60 per pound area.
Recent commodity articles:
18 June 2024: Precious metals go through prolonger period of consolidation
17 June 2024: COT: Dollar long jumps; Funds start rebuilding crude long
14 June 2024: Commodity weekly: Energy sector gains counterbalance metal consolidation
13 June 2024: Oil prices steady amid divergent OPEC and IEA demand projections
10 June 2024: COT: Brent long cut to ten-year low; metals left exposed to end of week slump
3 June 2024: COT: Crude length added before OPEC+ meeting; gold and copper see profit-taking
31 May 2024: Commodity weekly: Strong month despite late decline in crude and fuel
27 May 2024: COT: Gold and crude see increased demand as dollar longs plummet
24 May 2024: Commodity weekly: agriculture surges, metals fall on fading rate cut hopes
23 May 2024: Podcast: 2024 is heavy metals
22 May 2024: Crude oil struggles near two-month low
17 May 2024: Commodity weekly: Metals lead broad gains
16 May 2024: Gold and silver rally as soft US data fuels market optimism
15 May 2024: Copper soars to record high, platinum breaks out
14 May 2024: COT: Crude long slump; grain purchases surge
8 May 2024: Fund selling exacerbates softening crude outlook
8 May 2024: Grains see bumpy start to 2024 crop year
6 May 2024: COT: Commodities correction spurs muted selling response
3 May 2024: Commodity weekly: Grains boost, correction in softs and energy
2 May 2024: Copper's momentum-fueled rally halts amid weakening fundamentals
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