Copper prices have hit a two-month low, driven down by increasing global stockpiles and mounting fears of an economic slowdown. On August 5, the London Metal Exchange (LME) saw three-month copper prices fall to $8,714 per metric tonne, a sharp decline from the record $11,104.50 per tonne set on May 20. Similarly, the most active September contracts on the Shanghai Futures Exchange closed at 71,390 yuan per tonne ($9,934/t) on August 7, down from a peak of 88,940 yuan per tonne in May.
This decline in prices is largely due to a significant rise in global copper inventories, which reached a three-year high of 556,033 metric tonnes on August 2, up from 215,269 tonnes at the end of December 2023. The increase in stocks is a result of rapid production growth, particularly in China and the Democratic Republic of the Congo (DRC), coupled with weaker-than-expected demand from China, the world’s largest copper consumer.
From January to May, global refined copper production rose by 6% year-on-year, with Chinese smelters adding around 800,000 tonnes per year of new capacity, mostly in the latter half of 2023. The diversified metals producer CMOC saw its copper output from DRC operations double to 313,400 tonnes in the first half of 2024.
Looking ahead, copper production is set to increase further as new projects come online later this year. Freeport McMoran has completed its Manyar smelter in Indonesia, with a capacity of 300,000 tonnes per year, which is expected to start producing copper cathodes soon. Additionally, new facilities from Amman Mineral Nusa Tenggara in Indonesia and Jinchuan Group in China will add significant capacity before the year ends.
Despite this surge in production, demand for copper, particularly in China, has not kept pace. Chinese copper demand is only expected to grow by 2-3% this year, hindered by a 21.8% drop in new housing completions in the first half of 2024. The power grid sector, another major consumer of copper, has also seen slower growth, as investments have shifted towards aluminum-heavy ultra-high voltage grids.
While emerging sectors like electric vehicles and solar power are boosting copper demand, this growth has not been enough to counterbalance the slowdown in the real estate and power sectors.
Adding to the pressure on copper prices are broader economic concerns. Weaker-than-expected US job data for July, alongside declining manufacturing indices in the US and China, have sparked fears of a global recession. These concerns led the US Federal Reserve to hold an emergency meeting on August 5, following a sharp drop in Japan’s stock market.
On the positive side, ongoing supply constraints and potential production cuts may help support prices. A shortage of copper concentrate and the shutdown of several Chinese secondary copper processors due to a tax rebate cancellation could lead to reduced output. Additionally, a strike at BHP’s Escondida copper mine in Chile may further tighten supply.
The growing artificial intelligence (AI) industry in the US could also boost copper demand, particularly in states like Virginia, where electricity consumption has surged due to the rapid expansion of AI data centers.
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