Copper prices have taken a significant hit, falling below the $9,000 per ton mark for the first time since early April. This downturn can be attributed to a global stock market selloff and growing concerns about demand in China and other key markets. The industrial metal has experienced a roughly 20% decline since reaching a record high in mid-May, driven by worries over rising inventories and sluggish conditions in the Chinese spot market.
What is behind this market downturn? Copper is often seen as an economic bellwether due to its close correlation with industrial production. Referred to as “Doctor Copper,” the metal’s price is closely watched as an indicator of the overall health of the economy. The price of copper on the London Metal Exchange (LME) has been on a downward trajectory since reaching its peak in May. This decline has been exacerbated by a significant selloff in global technology stocks and uncertainties surrounding the growth of the artificial intelligence sector. The AI industry, which previously supported copper prices, is now facing doubts about its expansion, impacting the demand for copper. Gong Ming, an analyst at Jinrui Futures Co., highlighted that concerns about global growth could further drive copper prices down, although there may be some support around the $8,900 level due to potential supply risks.
As of the latest data, copper has dropped by 2.2% to $8,900 per ton and was trading at $9,010 at the time of reporting. Across the board, most metals on the LME were in the red, with tin seeing a 2.6% decline and zinc losing 1.5%. Iron ore also experienced a 0.9% drop, trading below $100 per ton in Singapore, indicating ongoing robust supply in the market. Liz Gao, a senior iron ore analyst at CRU, pointed out that weak steel demand and negative steel margins in China have led mills to scale back production and avoid building up raw material inventories. Despite recent interest rate cuts by China’s central bank aimed at stimulating the economy, copper prices have continued to slide, marking one of the most significant weekly declines in nearly two years.
China, as the world’s largest consumer of commodities, has seen its copper exports reach record highs, despite efforts to bolster the domestic economy through unexpected rate cuts. The lack of immediate stimulus following a recent major Communist Party meeting has added to investor disappointment. Ewa Manthey, a commodities strategist at ING Bank NV, anticipates further declines in copper and other industrial metals in the near term, reflecting a softer demand outlook in China. Refined copper exports from China surged to a record high in June, driven by weak domestic demand, prompting smelters to seek overseas markets. The country’s economic growth slowed to its weakest level in five quarters in the period through June, contributing to a 14% drop in global copper prices since mid-May.
The surge in exports has also resulted in a notable increase in copper inventories at LME warehouses, which have more than doubled since mid-May, reaching their highest levels since September 2021. This rise is primarily attributed to sluggish domestic demand. Benchmark Minerals Intelligence suggests that despite spot treatment and refining charges (TC/RCs) hitting record lows, Chinese smelters are maintaining robust output levels. While most smelters in China are reportedly operating at a loss, the influx of scrap copper supply, up by 20% year-on-year since the peak in May, has bolstered refined copper production in the country.
The demand for copper in clean energy applications remains a positive driver, even as prices dip below the $9,000 threshold, leading scrap merchants to reduce supply and keep inventories low. As scrap supply diminishes in the third quarter, raw material supply is expected to tighten. Benchmark forecasts a 2.3% growth rate in refined copper production in the second half of the year. Despite strong refined copper supply in China during the second quarter, consumption growth was lackluster. Elevated copper prices have curbed restocking and plant utilization, resulting in a counter-seasonal stock build and record exports in May.
While facing short-term challenges, indicators for end-use demand are encouraging, with electric vehicle sales up by 32%, and significant growth in solar installations and grid investments. The International Copper Association projects a modest 0.5% growth in traditional copper uses, with substantial increases anticipated in green energy sectors. Demand from electric vehicles and chargers is set to rise by 11%, while grid expansion will boost demand by 19%, and renewable energy technologies are expected to see a 7% increase in copper usage. Meeting net-zero carbon emission targets by 2035 could necessitate doubling annual copper demand to 50 million metric tons, according to research backed by S&P Global. Even conservative estimates suggest a one-third increase in demand over the next decade due to investments in decarbonization by governments and businesses, highlighting copper’s crucial role in the transition to clean energy.
Miners will need to adapt to this evolving landscape and ramp up production to meet the growing demand for this essential metal. As copper prices experience downward pressure, the industry’s ability to respond to these shifting dynamics will be pivotal in shaping its future trajectory.
