Copper Market Outlook: Sluggish Demand and Rising Inventories Weigh on Prices

The copper market is under pressure as sluggish demand in China and soaring inventories lead funds to retreat, exacerbating the decline in prices. Since reaching record highs last month, copper prices have fallen by approximately 12%.

However, analysts predict a rebound driven by significant demand growth from the electric vehicle sector and new applications such as data centers, which are expected to create metal shortages.

The previous month's buying spree was fueled by a weak US dollar, making dollar-priced metals more attractive to foreign investors, and concerns over concentrate shortages impacting supply.

On May 20, copper prices on the London Metal Exchange (LME) surged to a record high above $11,100 per tonne, marking a nearly 25% increase in seven weeks. Currently, prices hover around $9,700 per tonne.

Despite investors maintaining long positions on copper, weak demand from China is likely to prompt long liquidation, further pressuring prices in the near term. Copper also reached an all-time high of $11,460 per tonne on the CME last month. As of June 11, money managers' net long positions on CME copper had declined by 27% from the three-year peak recorded on May 21.

Copper prices are expected to remain below $10,000 unless there is a significant uptick in demand from China. A return to better fundamentals, rather than speculative buying, is necessary for a sustained price increase.

China, which accounts for roughly half of global copper demand estimated at around 26 million tonnes this year, has seen soft consumption due to its struggling property sector and weak manufacturing activity. The construction sector in China remains a key pain point, with a more realistic price range for copper being between $9,000 to $9,500 per tonne.

This tepid demand is reflected in the copper stocks delivered to LME warehouses in Asia, primarily from China, which have surged nearly 60% to 165,175 tonnes since mid-May. Concurrently, copper stocks in warehouses monitored by the Shanghai Futures Exchange (SHFE) have risen nearly 90% since January, reaching 322,910 tonnes.

Copper prices are expected to recover as the Chinese economy rebounds, with increased demand anticipated from the real estate sector, electric vehicles, and data centers.