Investors fleeing the copper market are likely to be sidelined for many months, leaving the field clear for physical players who expect demand in top consumer China and elsewhere to deteriorate over coming months and weigh on prices.
A fund buying frenzy, based on an expected shortage of copper relative to demand, sparked a rally on the London Metal Exchange (LME) earlier this year, which quickened as momentum traders entered the fray to lift prices to a record high above $11,100 a metric ton in May.
At the same time, commodity traders were buying on the LME to deliver against their commitments to sell copper on COMEX, part of CME Group.
However, copper has dropped nearly 20 per cent since as persistently weak manufacturing activity led the physical market to reassert control, with consumers putting purchases on hold and producers and traders delivering surplus metal to LME-registered warehouses.
“Updates to demand and refined production have pushed the market to a surplus sooner than expected,” said Macquarie analyst Alice Fox, who expects copper surpluses of 265,000 metric tonnes this year, 305,000 tonnes in 2025 and 436,000 in 2026.
Fox said prices may recover in the fourth quarter if exchange stocks are drawn down.
“However, absent faster global growth boosting demand, the more sizeable surpluses in 2025 and 2026 mean this rally is likely to be short-lived,” Fox said, adding that prices could fall back towards $8,000.
Burnt fingers
LME copper hit four-and-a-half month lows of $8,714 a tonne in early August as US recession fears and concern the Federal Reserve has kept interest rates too high exacerbated negative sentiment from soaring inventories and lacklustre demand.
China consumes more than half of global refined copper supplies, estimated at around 26 million tonnes this year.
But much of the copper used in China is for wiring in household goods which are then exported. A housing market slump and China’s stagnant manufacturing sector highlight the headwinds copper demand faces.
“If you strip out exports, domestic demand in China looks to be anaemic. There’s no copper shortage,” said BNP Paribas analyst David Wilson, who expects a surplus of between 150,000 and 200,000 tonnes this year.
“Product fabricators have destocked. If you are a manufacturer and unsure about the outlook for demand and exports, you are not going to restock aggressively.”
Data from the International Copper Study Group (ICSG) showed a copper market surplus of 416,000 tonnes between January and May, laying bare the idea of large deficits this year.
Copper inventories in warehouses registered with the LME, a market of last resort, have risen to five-year highs above 300,000 tonnes, up around 200 per cent since mid-May.
Most of the metal was delivered to LME warehouses in Korea and Taiwan. It came from Chinese producers unable to sell their wares to the domestic market and aiming to take advantage of LME prices above those on the Shanghai Futures Exchange.
Copper stocks in the South Korean cities of Busan and Gwangyang and Taiwan’s Kaohsiung totalling 239,100 tonnes now comprise 78 per cent of total copper stocks in the LME system compared with 31,925 tonnes and 31 per cent on May 16.
The threat of a prolonged strike at BHP’s Escondida copper mine in Chile, which produced nearly 5 per cent of the world’s copper in 2023, raised concerns last week about tighter supplies but a settlement on Sunday dispelled the fears.
Over the longer term however, deficits are predicted as structural changes to copper consumption from new technologies linked to AI and the energy transition accelerate.
“We still see copper as the backbone for decarbonisation,” said Glencore CEO Gary Nagle at a recent briefing. “Spending on AI data centres, renewable infrastructure is very copper hungry, very copper intensive.”