Key points:

  • Slower economic growth, particularly in China, has reduced demand for copper, particularly in the construction and manufacturing sectors.
  • Manufacturers have increased copper production, resulting in excess supply over demand.
  • A copper shortage is expected in the long term due to growing demand in new technology sectors such as AI and renewable energy.

Investors who have been buying copper may be leaving the market for a long time. Such capital outflows could create favorable conditions for physical traders who expect copper demand in key consumer market China and elsewhere to weaken in the near term. This, in turn, could put pressure on prices.

Sharp increase in supply on the market

The copper euphoria, fueled by the forecast of a supply shortage amid growing demand, triggered a rapid rise in prices on the London Metal Exchange (LME) at the beginning of this year. This trend was reinforced by speculative operations aimed at further price growth. As a result, in May, the price of copper reached an all-time high, exceeding the mark of $11,100 per ton.

At the same time, participants in the commodity market actively purchased copper on the London Metal Exchange (LME) to fulfill their obligations to sell this metal on the COMEX commodity exchange, part of the CME group.

However, with the slowdown in manufacturing activity becoming a persistent trend, the physical copper market has come under the control of sellers. Weaker demand from consumers and increased supply from producers and traders have led to a significant increase in copper stocks in LME warehouses. As a result, the copper price has fallen by almost 20%.

Alice Fox, an analyst at Macquarie, notes that faster-than-expected growth in refined copper supplies and weaker demand have led to a surplus in the market. She forecasts the copper surplus to be 265,000 tonnes this year, 305,000 tonnes in 2025 and reach 436,000 tonnes in 2026.

Fox believes that copper prices could recover in the fourth quarter of this year, provided that exchange inventories are significantly reduced. However, she stresses that without an acceleration in global economic growth and demand, a significant copper surplus in 2025 and 2026 could limit the duration of such a recovery. The analyst admits that the price of copper could fall to $8,000 per ton.

Can the problem of excess copper be solved?

In early August, the price of copper on the London Metal Exchange reached a 4.5-month low, falling to $8,714 per ton. The decline was driven by concerns about a possible recession in the United States, as well as concerns that the Federal Reserve will keep interest rates high. These factors, combined with rising copper inventories and declining demand, negatively affected market sentiment.

China, which consumes more than half of the world’s refined copper (about 26 million tonnes per year), is a key player in this market. However, a significant portion of the copper used in China is destined for the production of electrical wiring for household appliances, which is then exported. The downturn in the real estate market and slowing industrial growth in China create additional obstacles to copper demand growth.

David Wilson, an analyst at BNP Paribas, notes that, excluding exports, domestic demand for copper in China remains weak. According to his estimates, there could be a surplus of 150,000 to 200,000 tonnes of copper on the market this year. Producers, fearing a decline in demand and exports, are reluctant to increase their stockpiles.

Data from the International Copper Study Group (ICSG) confirms the presence of a copper surplus on the market. In the period from January to May, a surplus of 416,000 tonnes was recorded, which refutes forecasts of a significant deficit.

Copper stocks in LME warehouses reached a five-year high, exceeding 300,000 tonnes. A significant part of this metal was placed in warehouses in Korea and Taiwan by Chinese producers who were unable to sell their products on the domestic market.

Despite the current surplus, a copper deficit is expected in the long term. This is due to structural changes in copper consumption caused by the development of new technologies. This is especially true for artificial intelligence and the transition to renewable energy. Data centers for artificial intelligence and infrastructure for renewable energy are large consumers of copper.