LONDON — Climbing inventories due to slowing demand and mounting mine supply are set to hit copper prices over coming months, with the move exaggerated by speculators cutting bets on higher prices of the metal used in power and construction.
Demand optimism kindled by top consumer China easing some COVID restrictions has faded as cases have risen and new curbs have been imposed, which will further undermine industrial activity.
A lower U.S. currency, which makes dollar-priced metals cheaper for holders of other currencies, provided a boost, but that trend too seems to have stalled due to hawkish comments on U.S. interest rates from Federal Reserve officials.
Benchmark copper on the London Metal Exchange rose 20% between Sept. 28 and Nov. 14 to $8,600 a tonne, but has since retreated.
Further pressure on copper prices will come from a jump in mined production – about 8% to around 24 million tonnes next year compared with a rise of only 1.8% this year, according to Macquarie analysts.
That will be compounded by a further slowdown in industrial activity, as highlighted in surveys of purchasing managers in China’s manufacturing sector showing contraction.
“There’s a major disconnect between the demand outlook and speculative positioning,” said Citi analyst Max Layton.
Citi expects a copper market deficit of 142,000 tonnes this year and a 199,000-tonne surplus in 2023.
“Inventories will rise because of the seasonal surplus we usually get between December and March. Copper prices will fall over the next couple of months,” Layton said.
Already copper stocks
Not all the excess copper will find its way to exchange warehouses. Some of it may be stored by producers, consumers and commodity traders off-exchange and, while these stocks may be invisible, they will be reflected in physical market premiums, which are already sliding.
The widely watched Yangshan premium
“The degree to which China’s economy will recover following some very significant stimulus measures will be key,” said CRU analyst Panos Kotseras. “CRU is expecting surpluses in 2023-2024, copper prices are going to come under pressure.”
(Reporting by Pratima Desai Editing by Mark Potter)