China’s Economic Moves Drive Copper’s Price Rollercoaster
Copper, the third most utilized metal globally, holds a pivotal role in the ongoing energy transition, particularly in the realms of electrification and renewable energy. Recent market dynamics, notably influenced by China’s economic stimulus measures, have sparked significant volatility in copper prices, casting a shadow of uncertainty over the metal’s future.
Copper futures are actively traded on major platforms such as the London Metal Exchange (LME), COMEX, and the Multi-Commodity Exchange (MCX) in India. The metal stands as the third most utilized globally, especially in modern industries. Chile leads the pack as the top producer, accounting for over one-third of the world’s supply, followed by Peru, the Democratic Republic of the Congo, China, the United States, among others. Noteworthy copper importers encompass China, Japan, India, South Korea, and Germany.
The month of October 2024 witnessed significant fluctuations in copper prices, primarily driven by economic developments in China. The country’s central bank unveiled a substantial stimulus package in late September aimed at revitalizing its economy, incorporating measures such as interest rate cuts and mortgage payment alleviations. These initiatives momentarily bolstered copper demand, propelling the London Metal Exchange three-month (LME 3M) copper price to a four-month peak of $9,995 per metric ton on September 27. However, the optimism was short-lived as market participants grappled with the lack of clarity surrounding the stimulus package’s expenditure. This, coupled with a robust U.S. dollar and dwindling copper demand, triggered a price descent. By October 17, the LME 3M copper price had receded to $9,506 per metric ton as reported by S&P Global Commodity Insights.
On Monday, copper futures dipped to approximately $4.31 per pound after registering gains in the preceding two sessions. This decline was propelled by a strengthening dollar and escalating U.S. Treasury yields, as the resilient U.S. economy dampened hopes for substantial interest rate cuts by the Federal Reserve. Meanwhile, investors are keenly observing the forthcoming National People’s Congress meeting in China (November 4-8) for updates on debt and fiscal measures.
Production Setbacks Tighten Supply
The global copper supply has encountered hurdles, notably stemming from production setbacks in key regions. A significant disruption affecting supply was a fire at Freeport-McMoRan Inc.’s Manyar smelter in Indonesia, delaying the smelter’s production commencement to early 2025. This incident has necessitated adjustments to the concentrate market deficit forecast. Other production challenges included diminished output at pivotal smelters in China, such as Baiyin and Jinxin, further constricting concentrate supply. Consequently, the projected deficit for 2024 now stands at 52,000 metric tons, with a larger shortfall of 848,000 metric tons anticipated for 2025. Despite these supply disruptions, treatment charges (TC) for copper concentrates are expected to remain at $35 per dry metric ton in 2025. This implies that the tightness in concentrate supply may persist, potentially exerting upward pressure on smelter margins.
Demand Dilemma: EV Boom Bolsters Copper, But Buyers Await Better Prices
The Chinese market has displayed mixed signals, with downstream copper buyers post-national holidays in early October anticipating further price declines, resulting in a slowdown in new orders. Consequently, reports emerged of production cutbacks among wire and cable manufacturers. Some buyers have transitioned to utilizing copper scrap due to its increased availability, delaying the procurement of primary copper. Not all demand indicators painted a bleak picture, with China’s electric vehicle (EV) sector providing a boost, witnessing a 48.8% year-over-year surge in EV production in September 2024. This trend has underpinned heightened demand for copper components, pivotal in EV manufacturing. Copper, being the optimal metal for conducting electricity, plays a critical role in EVs, batteries, and other green energy sources like wind and solar. An EV typically utilizes approximately three times more copper than a conventional gas-powered vehicle. As the shift towards cleaner energy gains momentum, EVs are poised to augment their share of total copper demand from about 11% in 2021 to over 20% by 2040. According to data from BHP, global copper demand is projected to surge by about 70%, surpassing 50 million tonnes annually by 2050, with the traded metal witnessing an average annual growth rate of 2%.
Market Outlook: Copper Prices in 2025
Looking ahead, experts anticipate copper prices to remain under pressure due to the prevailing balance of supply and demand. Nevertheless, potential upticks in orders at reduced prices and seasonal demand could provide a buffer for prices. For 2025, the outlook suggests a tighter concentrate market, with an anticipated deficit of 848,000 metric tons, which could potentially stabilize prices around $9,825 per metric ton. Despite the prevailing challenges, the forecast presents a blend of cautious optimism and sustained volatility in the copper market.
