Copper will likely rise after Q2 but weak demand may cap gains

Copper prices could gain in 2024 but they will be capped by weak global demand due to slack growth in China and major economies. Any gain will likely come only in the second quarter or early third quarter, analysts say.

“We believe the short-term outlook remains bearish to neutral for copper demand and we do not foresee a substantial recovery in prices before the second quarter of the year, which should mark the starting point for Fed rate cuts, according to our US economist,” said ING Think, the financial and economic analysis wing of Dutch multinational financial services firm. 

“Although we expect prices to improve slightly in 2024, we note that weak demand from China and a limited growth outlook across major markets will place a cap on prices, tilting the balance of risks to the downside,” said research agency BMI, a unit of Fitch Solutions.

Impact of borrowing costs

“Global macro headwinds continue to weigh on (copper) prices heading into 2024 . The weak global outlook (ex China) is expected to put downward pressure on copper prices in the near term,” said Australia’s Office of the Chief Economist (AOCE).

In its Commodity Outlook in October, the World Bank said metal prices, including that of copper, could drop by 5 per cent in 2024. “Outside of China, high borrowing costs could reduce demand for metals, such as lead and tin, which are intensively used in industry and consumer durables,” it said.

Copper’s 3-month contract on the London Metal Exchange was quoted at $8,386 a tonne, while for cash, the red metal was quoted at $8,254. 

BMI said, “We maintain our 2024 average annual copper price forecast at $8,800/tonne, above the 2023 average on the back of a decline in dollar strength and supply constraints.”

Down since Jan 2023

Prices have been on a steady downward trend since mid-January 2023, after peaking at $9,356 on January 23, 2023, on the back of expectations of a strong rebound in demand from China.

Kishore Narne, Director, Head-Commodities and Currencies, Motilal Oswal Financial Services, said any movement in copper only at the fag end of the second quarter this year or the start of the third quarter. 

The AOCE said compared to an estimated average of around $8,200 in the second half of 2023, the price is expected to average around $8,100 a tonne in 2024.

“China is also expected to face continued challenges in its construction sector in coming months, though this will be offset by robust activity in its manufacturing and energy infrastructure sectors,” it said.  

Strong $, a drag

ING Think said elevated rates and a stronger dollar have been a drag on metals in the past two years. “We believe the Fed’s interest rate path will continue to drive copper’s short-term price outlook,” it said. 

The AOCE said despite strong growth in copper demand in China in 2023, the poor near-term outlook for construction and manufacturing in major markets such as Europe and advanced Asia continues to weigh on the copper price.

The World Bank’s outlook said prices are expected to continue their steady decline as the economic activity in China and other major economies is expected to remain subdued with supply continuing to improve. 

ING Think said swaps markets are pricing in a 68 per cent chance of a Fed rate cut by March, compared with 79 per cent at the end of last week. “But if US rates stay higher for longer, this would lead to a stronger dollar and weaker investor sentiment, which in turn, would translate to lower copper prices,” it said.

Upside risks

The AOCE said upside risks to prices include the historically low levels of inventories globally. “Stronger-than-expected demand in coming quarters could be expected to draw inventories further and possibly cause price spikes.” it said.

Continued expansion of clean energy manufacturing in economies such as China and the US also present upside risks to copper prices over the outlook, with significant public and private investment in manufacturing capacity and infrastructure in both countries in recent years, said the Australian Office of the Chief Economist.

BMI said in the longer term, the copper market is expected to be in a sustained deficit as the green transition accelerates along with the demand for “green” metals including copper.