Just below the peak

Copper breached a psychological threshold on Friday, July 5, 2024, when the September delivery copper futures contract (HGU4) traded at $4.69 per pound, or approximately $10,300 per tonne, on the Chicago Metal Exchange. This is only about 10 percent off the all-time high of $5.20 per pound, or more than $11,460 per tonne, on May 20, 2024. As of July 8, 2024, while the contract price has fallen slightly to $4.65 per pound, the metal is still up more than 18 percent year-over-year.*

The price of the copper futures contract for September delivery (Source: Tradingeconomics.com)*

Forecasts for this year are positive

The red metal broke through the 10-thousand mark after Citigroup bank issued a forecast for a price rise back to that level. According to Mining.com, it states that the recent price drop was due to low global production numbers, but this should only be temporary. BMI Research, has a slightly lower estimate. In its June forecast, it estimated that the average copper price could reach US$9,200 per tonne this year. BMI's parent company, Fitch Research, even revised its estimate to USD 8 600. A similar forecast to BMI's was made by experts at ANZ Research. Specifically, they talk about a price level of USD 9 290[1].

Green energy as a driver

Metal prices are driven up by the output of Chinese refineries, higher demand than supply, but also by the problems in the Chinese property market, about which I recently wrote an analysis. The positive outlook also reflects the use of copper as a key element in decarbonisation and increased electricity consumption. The deployment of renewables and the demand for electric vehicles (EVs) rely heavily on copper, thanks to its excellent conductivity. As countries, particularly China, make progress in the transition to clean energy, demand for copper is expected to grow significantly.[2] This estimate is supported by China's plan to introduce further incentives to improve its renewable energy infrastructure, which, among other topics, is due to be decided during the so-called Third Plenary Session of the Chinese government and other leaders of the country.

Mine disruption pushes price up

In addition to the growing EV sector, supply issues from key mining regions in Latin America and Africa are also having an impact on the price. Due to political instability, environmental issues, production disruptions in Chile, Peru and Zambia, and the closure of one of the largest mines in Panama, we may see a significant increase in the price of this mineral.

Artificial intelligence will also help the price

With the development of artificial intelligence (AI) infrastructure, the importance of metals and building materials is key, as analysts at Wells Fargo also highlighted to Investing.com. They also added that significant global investment in AI enhancements will require improvements to existing infrastructure. The materials sector, particularly copper and steel, plays an integral role in the construction of AI data centers and energy-intensive networks, adding to already high demand. On the one hand, this represents a significant advantage for companies in these sectors, in terms of securing sales, but it is also another factor pushing the price of copper (and other materials) upwards.

Next year, forecasts diverge

While this year's commodity price forecasts are heading in a fairly similar direction, estimates for next year are already diverging. Citigroup forecasts an increase of up to USD 12 thousand per tonne. Slightly lower estimates have been published by BMI Research at USD 9 400 and ANZ Research at USD 9 929. Conversely, a downward forecast is reported by Fitch Research, which believes that copper will trade at USD 8,400. Given the strong developments in AI, if copper demand remains at the same levels as it is now, or even grows further, and supply issues persist, it is likely that a similar development to what we are currently seeing will continue and the copper price will maintain its current long-term bullish trend with some corrections[3].

Olivia Lacenova, principal analyst at Wonderinterest Trading Ltd.

* Past performance is no guarantee of future results.

[1,2,3] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.