Source: Gelonghui

Recently, driven by macroeconomic factors and fundamentals, copper prices have risen “fiercely”. On the night of April 19, the main contract for Shanghai Copper reached a high of 80,170 yuan/ton, hitting a new high since 2006.

Since the market bottomed out and rebounded on February 6, copper metal stocks have performed strongly, with an average increase of more than 50% in the sector. During this period, the share price of Northern Copper soared 162%, while Zijin Mining, Jiangxi Copper, Yunnan Copper, and Western Mining all rose by more than 50%.

Supply concerns drive copper prices to soar

On the supply side, events such as rising US PMI, supply disruptions due to the drought in Zambia, discontinuation of production at Vale's Sossego copper mine in Brazil, and a decline in copper production in Chile will support prices in the near future.

Meanwhile, the United Kingdom and the US have banned metal trading exchanges from accepting new Russian aluminum, copper, and nickel, and from exporting these metals to the US and the UK, which could further exacerbate price fluctuations and supply uncertainty.

Jing Chuan, a member of the Research and Development Committee of the China Futures Association and chief economist of East Asia Futures, said that at present, the global copper growth rate has slowed from 4.4% in 2023 to 2.2% in 2024, showing a downward trend in supply.

Among them, new energy increased the annual demand growth rate for copper from 2.6% to more than 2.8%. The rise in demand and the decline in supply have become a major driving force for the rise in copper prices. Furthermore, the peak consumption season has arrived as scheduled, and global inventories are expected to decline from April to May, which will further affect the market reaction and support the rise in copper prices.

London Metal Exchange (LME) copper prices have hit a new high in nearly 2 years this year due to concerns that there may not be enough copper supply to meet the needs of the energy transition.

Furthermore, domestic Shanghai-copper contract prices are also rising steadily. According to Flush data, compared to October 2023, the number of positions held on the night of April 19 has increased nearly 90 times.

Institutions are optimistic about copper prices in the future

Continued tight copper supply has caused agencies such as Citi and Goldman Sachs to “wave their flag” that copper may rise to 10,000 US dollars per ton by the end of the year.

Citi said that the price may reach 10,500 US dollars/ton in the next three months. The average price for the second and third quarters is expected to be 10,000 US dollars/ton compared to the previous estimate of 9,500 US dollars/ton. Copper prices hit Citi's target of 9,700 US dollars/ton on Thursday.

According to Citibank's new recent bull market forecast, as copper inventories in LME and the Shanghai Futures Exchange fall sharply over the next three months, copper prices may even reach 12,000 US dollars/ton during this period.

Earlier, Goldman Sachs strategist Nicholas Snowdon also said that as an unprecedented shortage of ores affects the refined copper market, the bank expects copper prices to soar to around 12,000 US dollars per ton in the first quarter of next year. Nicholas Snowdon anticipates a “very serious” gap in the supply of refined copper.

Guotai Junan Futures said, first, that, driven by improved overseas macro data and re-inflation expectations, non-ferrous prices have generally risen, and capital enthusiasm for investing in commodities such as copper continues to rise. Second, from a microscopic perspective, copper supply continues to be tight, and copper supply disturbances continue to increase, so copper supply may continue to be under pressure in the future. At the same time, the consumer side continued to improve, and investment in power grids increased year-on-year. It is expected that the workload will form in the later stages, leading to a recovery in demand for wires, cables and copper poles; domestic and export sales of air conditioners grew strongly in March. The demand side is relatively weak, but the consumer side will eventually be transmitted to the demand side, promoting downstream enterprises to replenish inventory and remove social inventory.

CITIC Securities pointed out that copper prices have continued to rise since March 2024, and recently surpassed 9,500 US dollars/ton. Looking forward to the future, CITIC Securities believes that the copper supply and demand pattern may turn into a shortage as the mining side continues to be tight and production cuts on the smelting side are expected to be implemented, and the time point of the active inventory replenishment cycle at home and abroad is approaching.

It is worth noting that some industry insiders believe that the current price of Shanghai copper is too high. Jiang Lu, chief non-ferrous analyst at CITIC Construction Investment Futures, pointed out that currently the downstream's ability to handle high-priced copper is weak. Jingchuan also said that high copper prices may curb downstream demand. Looking ahead to the future trend of copper prices, Jiang Lu believes that copper's strong momentum may turn from April to June. Once the macro level changes, copper prices may reach an inflection point.

edit/lambor