Copper rose above $9,000 per ton for the first time since April 2023. Investors are pricing in the risk of mining and production shutdowns at China's struggling smelters in the face of rising copper processing rates.
- Investors are slowly pricing in a scenario where the worst of China's economy slowdown is behind, and additional demand from EV and renewable markets could support the long-term outlook for the commodity. In addition, the prospect of policy easing in the US and Europe in the second half of the year is driving the market slightly higher;
- Although copper contract prices are rising, inventories of the commodity tracked on the Shanghai Futures Exchange rose to their highest level since the first days of the pandemic, signaling that the copper market's rally may not be sustainable. Some analysts claim that while the industries of Europe, the U.S. and China remain relatively weak, India's use of crude is constantly growing;
- However, iron ore future contracts have nudged below $100 per ton, the first time in more than six months, as investors price in continued uncertainty in China's property market;
- Still, the main catalyst driving copper prices higher is not strong demand, but an unexpected reduction in global supplies from mines. This is mainly due to last year's closure of the First Quantum mine in Panama. This year, there are growing concerns about production in Zambia, which is battling an El Niño-induced energy crisis;
- This week, an association of China's 19 largest steel mills held a crisis meeting. The smelters have not decided to cut production, but have pledged to rearrange maintenance work, reduce investment and delay projects.
It seems that the main reference for the long-term prospects of copper will be stocks on the Chinese stock exchange and information on mine output. BMO analysts expect stocks on the Shanghai Commodity Exchange to decline. If inventories continue to rise strongly, investors may pull back from long positions amid fears of demand from the infrastructure sector.
Copper has broken out to the highest levels seen since April 2023 and is now approaching the resistance zone set by the $9100 barrier (the zone of local peaks from February/April 2023). Source: xStation
COPPER futures break above $9000 level, where we can see the 23.6 Fibo retracement of the upward wave from the summer of 2022. Source: xStation5
