The copper price dropped below $US8000 ($12,231) per tonne earlier this week – a new six-month low – but it isn’t all doom and gloom for the base metal.
It comes amid a resurgence in the US dollar and concerning macro data from China. While the end of China’s lockdowns in late 2022 spurred a surge in the copper price to nudge $US9500 per tonne in January, the country isn’t investing as much into infrastructure and property as initially expected, limiting domestic demand.
This is hurting other base metals such as aluminium and zinc, while iron ore has also been affected, dropping below $US100 per tonne this week.
“Metals markets have faced significant pressures after the disappointing April macro data from China, which have acted as a wake-up call to the weak reality on the ground,” Citigroup Inc. said in a note.
Another headwind for copper is the US Federal Reserve’s recent monetary behaviours, where interest rates were hiked for the 10th time in 14 months in early May. This pushed rates to between 5 per cent and 5.25 per cent, increasing recessionary fears as a result.
Geopolitical concerns have also eased in some key copper jurisdictions, with the two largest copper-producing nations, Chile and Peru, boosting their output in recent months.
But the copper bulls remain, with Goldman Sachs suggesting the base metal will return to $US10,000 per tonne by this time next year.
The copper outlook continues to be supported by the rising decarbonisation narrative, with the commodity a highly efficient conduit for renewable energy systems such as solar, wind, hydro and thermal energy.
Fitch Solutions expects global copper demand to increase from 26.5 million tonnes in 2023 to 34.9 million tonnes in 2031, averaging 3.1 per cent annual growth.
This is to be supported by strong demand growth from the power and construction industries, increased electric vehicle manufacturing and an improving global economic outlook.
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