Copper inventory levels Inventories at various warehouses have reached multi-year highs. The latest data from the London Metal Exchange (LME) show that inventories at LME-registered warehouses have risen to near five-year highs and doubled in mid-June. Stock levels at China’s SHFE warehouses are also close to four-year highs.
This increase was due to a rare surge in exports from the world’s largest consumer of raw materials, China. Despite government stimulus measures, China has recently reported a series of disappointing economic indicators.
The country’s economic growth in the second quarter fell short of expectations and manufacturing sector figures contracted for the fourth consecutive month in August, reflecting underlying weakness in the economy.
Chinese copper demand growth is expected to be limited to 1-2% this year due to a sharp contraction in the manufacturing and property sectors. China’s post-Covid economic recovery has been short-lived and less robust than previously expected. The continuing crisis in its property sector and the trade war with the United States are leading to a lack of confidence among households and businesses. This is dampening consumption and affecting demand for raw materials. Major investment banks have cut their price forecasts for copper in the coming years. Recently, Goldman Sachs, once one of the metal’s leading proponents, lowered its target price for copper next year to $10,100 per tonne, down from a previous forecast of $15,000 per tonne. This adjustment was mainly due to contracting demand from China. The bank also believes that achieving China’s target growth will be a challenge this year due to the persistent slowdown in the property sector and sluggish manufacturing and exports. A strong US dollar is also putting pressure on metal prices, as a firm dollar makes commodity prices in US currency more expensive for buyers using other currencies.
The broad advance of industrial metals had previously sent copper prices The price of rice hit a new all-time high of Rs 945 per kg on the Indian futures market, up around 30 per cent in the first six months of the year. However, since then, prices have corrected sharply due to the lukewarm Chinese demand perspective.
Copper, the LME benchmark metal, also performed similarly, hitting a new record high of $11,104 per tonne in May but correcting shortly after.
However, global copper demand is still seen doubling over the next decade, driving up prices. Copper is a critical energy transition metal for global clean energy deployment, and there is speculation that the world’s mines will struggle to meet future demand. Traders are optimistic that millions of tons of new supply will be needed in the coming years for areas such as electric vehicles, renewable energy and vastly expanded power grids.
Despite the long-term bullish outlook, the prolonged Chinese property market crisis and the prospects for subdued global growth continue to put pressure on prices. However, a more significant recovery in Chinese demand could lead to a sharp turnaround in prices.
(The author, Hareesh V, is the Director of Commodities at Geojit Financial Services. The opinions are their own.)
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