The U.S. Federal Reserve’s recent interest rate cut has triggered varying predictions regarding copper prices, with some market analysts expecting a boost in demand from the property sector and a weaker dollar, while others remain cautious about short-term fluctuations. Historically, a weaker U.S. dollar strengthens copper prices since the commodity is priced in dollars, making it more affordable for foreign buyers.
On September 18, the Federal Open Market Committee (FOMC) slashed the federal funds rate by 50 basis points, reducing the range to 4.75-5%, marking the first such cut since 2020. Policymakers have hinted at another 50 basis points of cuts by the end of 2024, with further reductions of up to 100 basis points expected through 2025.
Market participants in China are optimistic that lower borrowing costs in the U.S. may prompt similar moves from China, particularly in the property sector, where copper demand is crucial. An industrial analyst told Metalnomist, “China is likely to follow the U.S. in lowering borrowing costs, which could bolster demand from the property market.” According to a Reuters poll, China is expected to reduce its lending rates, potentially lifting copper prices further.
Despite the broader expectations, copper prices saw minimal change in the immediate aftermath of the rate cut. On the London Metal Exchange (LME), three-month copper prices dropped marginally by 0.2% to $9,382.5 per ton. Meanwhile, Shanghai Futures Exchange (SHFE) copper prices for the October contract rose by 0.43% to 74,760 yuan per ton.
Some analysts caution that the rate cut was widely anticipated, and the market had already priced in this outcome, limiting immediate gains in copper prices. A trader explained, “The market has already absorbed the rate cut news, and copper prices had rallied earlier in the week.”
On the supply side, falling inventories in China have contributed to a more optimistic outlook. SHFE copper stocks dropped from 241,745 tons on August 30 to 185,520 tons by mid-September, as producers restocked ahead of the Mid-Autumn Festival. Some experts believe this declining inventory trend could support higher copper prices in the coming weeks.
Nevertheless, there are concerns that copper prices could soften in the short term. SHFE’s most traded contracts have reached levels deemed high for downstream producers, sparking predictions of a potential price dip. “Copper prices may decrease in the near term, given the current contract levels,” said an industry analyst.
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