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Copper retreats from record highs
Copper price forecast: Should you buy, hold or sell?
The price of copper has had a bit of a rebound in recent weeks, after falling on 15 July to its lowest levels since November 2020. However, base metal prices having retreated significantly from record highs seen in March.
Increasing concerns that rising inflation and interest rates will tip the global economy into a recession continue to weigh on the markets.
Is the price retreat a buying opportunity, or would a short position on copper be more profitable?
In this article, we look at the drivers for the recent market volatility and copper price predictions from a few analysts.
The price trend of copper was choppy at the start of the year as pandemic-related lockdowns across several regions in China raised concerns about a slowdown in economic growth just as industrial production had ramped up following the Lunar New Year holiday. Manufacturing plants in Changchun suspended operations and construction work was halted in Shanghai, reducing consumption in the world’s largest copper market.
At the end of February, traders weighed the impact of the Russia-Ukraine conflict on commodities and stockpiled industrial metals. On rising demand and tightening supply, prices for copper as well as aluminium, tin and zinc reached record highs in March. The COMEX copper price chart shows that the metal climbed by 130% from the March 2020 low at the start of Covid-19 lockdowns to trade up to $5 a pound in early March 2022.
There are several long-term demand trends that have been supportive to copper, in addition to the recovery in demand from the pandemic.
The transition to clean energy requires larger quantities of copper for wiring in electric vehicles (EVs) and solar panels. Higher crude oil and gas prices are raising operational costs for copper producers, but also accelerating the energy transition and in turn increasing copper demand.
The pandemic has also seen a boom in demand for manufactured goods including electronics and household appliances as consumers have turned to home entertainment and improvement during lockdowns.
At the same time as demand has climbed, output from copper mines has not kept pace, tightening the supply balance.
However, copper prices have retreated by 25% from the March highs. The London Metal Exchange (LME) Index recorded its sharpest quarterly drop since the 2008 global financial crisis during the second quarter.
Aggressive interest rate rises by central banks, including the US Federal Reserve (Fed), to tackle 40-year high inflation have increased concerns among traders that the global economy could be facing a hard landing.
The Fed raised rates by another 75 basis points in July, for the second consecutive month.
The Caixin Manufacturing Purchasing Managers’ Index (PMI) for China slipped to 50.4 in July, from 51.7 in June, indicating a back-to-back monthly improvement in business conditions. However, “a softer rise in overall new business in July” weighed on the index.
In the latest copper news, Chile, the world’s largest copper producer, is in the process of introducing tax reform legislation that will increase the amount of royalties copper mining firms will pay if they produce more than 50,000 tonnes per year. This could see them increase their prices to absorb the cost.
The metal’s price dropped to $3.27 a pound on 6 July, down from its record high of $5.03 on 7 March and $4.46 at the start of the year. However, the market remains well above the March 2020 low of $2.17.
The copper price history shows the market has been trending higher since 2018, turning around an extended decline that started in 2010.
What is the long-term copper outlook? Do analysts expect prices to rise or fall? We look at some of the latest copper price forecast analysis below.
On 6 July, technical analysis of copper on the Comex exchange in the US by brokerage Zaner was bearish for the short term price trend of copper: “Unfortunately for the bull camp, copper has little in the way of weekly support on the chart for another $0.07 on the downside, with an ultimate targeting seen at a past consolidation just on top of $3.50 [a pound],” it said. “Escalating recession fears and promises of even higher interest rates leave the bear camp emboldened.”
Zaner’s analysts added in their copper price forecast: “Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market’s short-term trend is negative as the close remains below the nine-day moving average... The next downside objective is 3.48. More downside action may be limited by the RSI under 20 putting the market in extremely oversold territory.”
Analysis by Trading Economics also leaned on the bearish side on the future price, expecting copper to trade at $3.54 a pound by the end of the current quarter and $3.32 in 12 months’ time.
But algorithm-based forecasting site Wallet Investor was positive on the longer term market outlook, predicting on 1 August that the US price could rise over the coming years. The website’s copper price forecast for 2022 estimated that the price could reach $ 3.71 by the end of 2022, while its copper price forecast for 2025 saw the price reaching $5.41.
According to Mining.com: “While the copper price has seen some recent turmoil due to fast-rising interest rates and weak economic data, what remains steadfast is how much the world needs copper, as the highly conductive metal is a key component of industrial infrastructure and electric vehicles.”
Earlier in May, Sucden Financial noted in its quarterly monthly report: “Copper production in China was softer in April and May due to maintenance, which caused TCs to rise; June output will be stronger, which could mean inventories in China will start to rise once again… End-user demand in China is woeful, and macro indicators show this, but logistical issues are causing ‘backwardations’.”
On 23 June, analysts at Fitch Solutions revised their forecasts, suggesting copper could rise to average $9,470 a tonne in 2022, $9,580 – in 2023, and $10,400 – in 2026.
Analysts at Canada’s TD Securities see the potential for further downside, writing in a copper price analysis on 5 July: “Timing a market squeeze is an art, particularly amid poor liquidity conditions. Under the crushing weight of a collapse in commodity demand, copper prices have slashed through every support level.”
On 30 June, the TD analysts wrote in their copper price forecast: “We took profits on our tactical short in copper, but global macro pressures continue to build... The relentless pressure from slowing commodity demand has not been supportive for a bear market rally to gather steam, but instead has led to a consolidation for the time being.”
In its April commodities forecast, the World Bank expected prices to decline over the next few years, from a high of $10,100 a tonne in 2022 to $9,700 in 2023 and $9,000 in 2024.
Citi has previously predicted in its copper price forecast for 2030 that the metal could trade at $10,750 a tonne by the end of the decade, with a bull case of $14,341 and a bear case of $8,963.
When considering any market predictions, it’s important to keep in mind that commodity prices are highly volatile, especially illiquid markets like tin, making it difficult to accurately predict where prices will be at any given time in the future. You should always do your own research and remember that past performance is no guarantee of future returns. And never invest money that you cannot afford to lose.
Copper is a highly volatile commodity, offering the potential for high returns with the switch to electric vehicles but, like any commodity, is also at risk from economic fluctuations. Whether copper is a good fit for your portfolio depends on your risk tolerance, investing strategy and portfolio composition, among other factors. You should do your own research. And never invest money that you cannot afford to lose.
As of August 2022 the outlook for the copper market was mixed. Some forecasts suggested prices could rise while others expected them to fall. This emphasises the importance of doing your own research to take a view of the market. Always keep in mind that analysts can and do get their predictions wrong.
Whether you should invest in copper is a personal decision you should make based on your risk tolerance, portfolio goals and how much money you have to invest. You should do your own research on the market. Keep in mind that past performance is no guarantee of future returns. And never invest more than you can afford to lose.
Copper prices are driven by factors such as demand and supply, the value of the US dollar, government monetary policy and overall sentiment on the global economy, among other factors. The move to more environmentally-friendly forms of energy generation such as wind and solar, and the coming ban in many parts of the world on the sale of new vehicles with internal combusion engines, should boost the price of copper over the longer term. However, commodities can be highly volatile in the short term.
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