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Copper Prices Face Bearish Headwinds

  • The Copper Monthly Metals Index (MMI) fell 4.33% from February to March.
  • China’s economic rebound has been less dramatic than expected.
  • China consumes 52% of the world’s copper.

Via AG Metal Miner

Recent price action suggests strong potential for the price of copper to shift away from the rally witnessed at the beginning of the year. Technical analysis (TA) indicates that copper prices have begun to form lower highs on shorter time frames. This is a strong indicator that a downtrend lies ahead. However, prices will continue to trade sideways until the price curve forms a lower low below the trend line. At that point, we expect copper’s downtrend to begin in earnest. 

Overall, the Copper Monthly Metals Index (MMI) fell 4.33% from February to March.

Demand Headwinds from China and the U.S. Mount

All eyes remain on China. According to mining giant Norilsk, this single nation consumes 52% of the world’s copper. For this reason, overseas investors pay very close attention to Chinese market decisions, and new legislative announcements often prove to be big market movers. 

The National People’s Congress recently set an economic growth target of about 5% for 2023. However, this is an underwhelming number compared to China’s past growth targets. Meanwhile, there was also no announcement regarding a major stimulus. According to Bloomberg, the target for local government bond sales (which support infrastructure investment) appeared very modest, suggesting further demand decline in the future.

Demand has also slowed domestically. Construction accounts for 46% of domestic copper demand. However, new reports indicate that demand continues to weaken across the sector. The most recent U.S. Census data indicated a month-over-month $1.8 billion contraction in total construction spending between January 2023 and December 2022. Rising interest rates, including expected increases in the Federal Reserve’s terminal rate, will likely further contract construction spending.

Supply Growth to Further Hammer Price of Copper

In addition to decelerating copper demand, an increase in supply could potentially disrupt the supply-demand balance, pushing the copper price down even further.

For instance, approximately 120 thousand tons of copper remain stranded in the Democratic Republic of the Congo. Experts estimate the copper to be worth around $1.1 billion. Reports indicate that a dispute over royalty payments between Chinese mining firm CMOC Group and a Congolese state-owned mining group has disrupted the export process. This, in turn, led to a substantial buildup of copper.

According to Bloomberg, while copper exports remained blocked in mid-July, the mine continued running at full capacity. Ultimately, the company simply decided to stockpile the extra metal until exports resumed. This single stockpile represents about 7% of global monthly production. Upon release into the market, it will likely put moderate downward pressure on global prices.

Meanwhile, the long-held narrative that the copper supply is in a constant shortage may begin to dissipate. Codelco, for example, aims to ramp up production at its Salvador mine to 90 thousand metric tons. Apparently, the decision came after several setbacks delayed production.

Glencore will also reopen its Peruvian Antapaccay mine, which closed due to political turmoil. As the narrative of a copper shortage weakens, so to will the perceived scarcity of the asset. This means investors will have less of an appetite to place bullish bets on the price of copper. In the short term, this translates to mild downward price pressure.

A Concerning Picture for Dr. Copper 

With many diverse uses throughout the economy, the recent movement in the price of copper remains strongly influenced by economic activity. But while many look to copper to gain insights about the economy, we can also look to the economy to glean information about copper. Relative to other base metals, copper has shown one of the strongest correlations to economic indicators like the S&P 500 since 2009.

Last week, Federal Reserve Chair Jerome Powell painted a concerning picture in his address to the Senate Banking Committee. Specifically, Powell reiterated his desire to achieve a target 2% inflation rate. He also indicated yet again that the path to the desired rate would be bumpy. Adding to domestic concerns is the fact that the terminal rate will also likely increase. 


Ultimately,  the supply, demand, and economic headwinds all point to copper prices falling as we move into the spring and summer. Technical analysis of the copper price trend further confirms these projections.

By Daniel Julius

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