What is happening to the price of copper?

Copper is set to end the year as the best-performing industrial metal, as a series of production disruptions squeezes supply of a commodity used in power lines, cars and appliances.
A recent price rise following mine supply problems in Latin America, coupled with signs of an improving Chinese economy, have sent the red metal up 2.5% this year to $8,600 a tonne.
The closure of a giant mine in Panama and a major downgrade of copper production forecast by Anglo American in recent weeks have helped remove 750,000 tonnes or 3% of global supply for next year compared to estimates, according to the Bank of Montreal.
Vale and Rio Tinto recently provided production forecasts that fell short of some analysts' expectations.
Traders had bet on rising supply at copper mines in the Democratic Republic of Congo, Peru and Chile to outstrip demand next year, but now see the market as tightly balanced.
“Just two months ago, expectations for the 2024 copper market were decidedly negative,” said Colin Hamilton, managing director of commodities research at BMO.
“The prospect of a bad year for copper is now gone.” Copper's comeback in 2023 took place against a challenging backdrop for metals during one of the most aggressive interest rate raising campaigns in the US Federal Reserve's history and as China's economy failed to strongly recover from lockdowns.
High interest rates have pushed up the dollar, the value in which metals are valued, with the dollar index rising more than 3% year-to-date through early October, making commodities more expensive for the importers.
Higher financing costs have also led to a reduction in capital-intensive investments and high financing costs of holding metals stocks, which have pushed producers to reduce inventories.
These bearish factors have also helped put downward pressure on aluminum, lead and zinc, putting base metals on track to become the worst-performing commodity sector for the second consecutive year.
Tin was the only one of six major industrial metals, other than copper, to rise this year after mining was suspended in a key region of Myanmar, the world's third-largest producer.
Nickel, however, has had a tough year due to increased supply from Indonesia and the increasing conversion of low-grade nickel products into a high-grade metal that can be delivered to London Metal Exchange warehouses.
The key ingredient for steelmaking and electric car batteries slumped 45% to $16,750 a ton.
Copper has long been nicknamed “Dr Copper” because its widespread use in construction and manufacturing makes it an important indicator of the health of the global economy.
However, supply problems and the strong growth of green energy sectors such as renewable energy, grid upgrades and electric cars – all large users of copper due to its ability to conduct electricity – have called everything into question that is.
In China, production of electric vehicles, plug-in hybrids and solar panels rose about 35% year-on-year in November, according to the National Bureau of Statistics, helping to support copper demand despite the manufacturing and real estate sectors in difficulty in the country.
“The Chinese economy is not doing badly, even though everyone seems to talk about it as if it is in recession,” said Daniel Smith of AMT, a London-based metals broker.
Smith believes hidden stockpiles of copper, undeclared in official inventories but available on the market, help explain why the price rebound hasn't been stronger.
Copper has gained just 8% since mid-October, despite the radical supply cuts announced.
Copper supply problems next year reflect broader concerns about the mining sector's ability to keep up with booming demand as the world turns to green energy, even as the quality of deposits declines, making it harder to 'extraction.
This trend has been clearly evident at Chilean state-owned Codelco, the world's number one copper producer, where output this year is also set to be the lowest in a quarter of a century.
Goldman Sachs expects copper prices to reach $10,000 per tonne in 12 months, helped by a downgrade in supply forecasts and the Fed's dovish turn last week.
“The supply cuts reinforce our view that the copper market is entering a much more evident period of tightening, also supported by a strong tendency to withdraw the metal in China, given its now completely depleted state” , analysts wrote in a note to clients.
Speculative activity also helped stimulate the recovery of copper.
Copper positions on the three major exchanges moved from the largest net short – bets on lower prices – this year in late October to the largest net long in three months as futures traders bet on higher prices.
“Copper has separated itself from the rest of the base metals over the past month driven by weakening macroeconomic headwinds and strengthening fundamentals, which in turn have attracted investor attention,” said Natalie Scott-Gray, senior metals analyst at StoneX.
, an intermediary.
Looking ahead to 2024, analysts say industrial metals will likely remain poised between China's economy and the rest of the world.
“The main driver of price action is expected to return to the extent that ex-China growth, and therefore demand, slows further,” Macquarie analysts wrote, “compared to the extent to which China growth can accelerate again." © The Financial Times Limited 2023.
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