Copper Hits $9,000: 5.5% Weekly Surge Amidst Supply Woes

Quick Look

• Copper prices exceeded $9,000 a ton, reaching an 11-month peak.
• A weekly surge was observed at 5.5%, highlighting a significant market movement.
• Supply challenges, including mine closures and output worries, increase prices.
• Citi predicts more upside for copper, citing demand improvements and market dynamics.
• Risks include market volatility and the uncertain pace of economic recovery.

The copper market has witnessed an impressive surge. Prices soared past $9,000 a ton, marking an 11-month high. This week alone, a 5.5% increase was recorded. The London Metal Exchange (LME) noted prices as high as $9,066.50 a ton. Early trading showed figures at $9,025.50 a ton. Futures also reflected this trend, with three-month futures on the LME peaking at $8,977.0 a ton. In the U.S., one-month copper futures reached nearly a year’s peak at $4.0810 a pound. This surge is significant, as noted by Citi, as the break above $8,600 a ton was a pivotal moment, with expectations of further gains.

Mine Closures Push Copper Towards $9,500

Supply issues play a crucial role in the current price dynamics. Macquarie pointed out mine supply disappointments. This led to a forecast of prices peaking at $9,500 a ton in Q3. Factors like the Panama mine closure and Zambia’s power crisis due to El Niño impact output. Moreover, global refined copper output is set to rise by only 2.1% this year. This is due to concentration shortages. Chinese smelters are also considering output cuts amidst falling processing fees and supply disruptions.

Copper Demand Up: China Fuels Market Optimism

The demand outlook is turning positive. Citi highlighted an anticipated improvement in copper demand based on signs of a global manufacturing cycle bottoming out. Furthermore, analysts now perceive China’s role as beneficial, supporting industries with high metal demand, such as automobiles, amid expectations of a “building equity bubble” driving increased demand. Despite production cuts by major players like Anglo-American and First Quantum, market sentiments remain bullish. Macquarie predicts a deficit in both copper concentrates and refined metal, backed by fund bets on tightening supply and recovering demand.

Copper Bets: Citi Eyes $9,500 Amid Volatility

Investment strategies are adjusting to the new market conditions. Citi is particularly bullish, taking a long position on a June 2024 $9000/$9500 call spread. This optimism is fueled by the expectation of continued demand recovery, especially from China. However, potential risks loom. Market volatility, indicated by an overbought RSI, suggests a possible pullback. The pace of economic recovery and distress in certain sectors could dampen demand, posing challenges to sustained price increases.