Copper prices experienced significant volatility in the second quarter of this year, with the LME’s flagship copper futures contract reaching a historic high of over $11,000 per tonne at mid-May.
Some Wall Street investment banks, including Goldman Sachs, have expressed optimism about the future copper prices, with analysts at Goldman Sachs suggesting that copper prices will continue to rise to $12,000 per tonne by the end of the year.
However, copper prices have been on a downward trend for over two months, trading around $8,800 per tonne on Thursday, August 8th, marking a 23% pullback from the mid-May highs and wiping out all of the yearly gains.
Market participants point out that the significant increase in copper prices in the first half of the year was mainly driven by market expectations, including factors such as supply constraints, a weakened US dollar credit, the peaking of monetary tightening policies, and positive expectations for demand.
Reasons for bullish copper prices also include the boost in demand from artificial intelligence data centers and military spending, along with the frequently mentioned energy transition.
However, in a recent report, Capital Economics emphasized that copper’s fate depends on China, more specifically, it depends on the country’s construction sector and smelters, as the rise in copper prices in the second quarter was initially ignited by discussions about output cuts.
The London-based research firm stated that compared to a slowdown in the US economy, the crisis in the Chinese property market and the prevailing overcapacity will drag down copper prices. With Chinese smelter output accounting for more than half of global production and expected to remain at high levels, coupled with ample exchange inventories that will result in a drop in China’s copper export prices, this will put pressure on global copper prices.
Capital Economics analysts forecast that while the increase in government borrowing and infrastructure investment in China towards the end of the year will push up base metal prices, by the end of next year, copper prices are likely to fall below today’s levels.
