fufu4dslot| After rising and falling back,"Dr. Copper" has reached its peak?

International copper prices fell after surging, showing their worst one-day performance so far this year on Wednesday. London Metal Exchange (LME) benchmark copper futures fell 3Fufu4dslot.8 per cent to $10412.50 a tonne, having fallen as low as $10410 a tonne earlier in the day. Other industrial metals also fell. Copper prices surged to an all-time high of $11104.50 a tonne on Monday and are still up nearly 22 per cent so far this year.

The reasons for the decline of copper prices

Copper prices surged to an all-time high on Monday as investors bet on a sharp tightening in global markets over the next few years, but are now down about 5 per cent. Due to profitFufu4dslotAware of signs that rising prices are squeezing demand, copper prices suffered their biggest one-day fall in nearly two years on Wednesday. In addition, hawkish comments from Fed officials also put pressure on metal prices.

First, Chris Beauchamp, chief market analyst at IG, points out that investment funds have poured into the copper market in the past few months and made good returns, but now they are beginning to take profits. Concerns about long-term supply and expectations of rising demand are one of many explanations for the rise in copper prices, but the latest data from the International Copper Research Group in February show that the market still exceeds demand; this prompted analysts at Commerzbank to point out in a report that although copper prices hit an all-time high of about $11100 a tonne on Monday, there was no obvious incentive for the rise. Although the market uses reasons such as long-term supply concerns to expected demand growth to explain the rise in copper prices, these factors are not new enough to support a price rise on the scale of copper prices.

Second, the decline in copper prices may be related to recent weak demand. Chinese factories are still reluctant to pay record prices for copper, according to the data. Goldman Sachs said recently that the latest order survey showed that copper demand was weaker than expected, which slowed as copper prices soared and intensified further in May since April, mainly due to order delays and shrinking size. Goldman Sachs believes that the current scenario may be similar to that in the second quarter of 2021, with excessive copper prices or a correction in order to embark on a more moderate and sustainable upward path.

The analysis points out that although China's ore supply is tight and the processing capacity of the country's vast refining industry is low, as the world's largest consumer of copper, China's import demand is still low. This caused copper stocks to climb to a four-year high for the first time since records began in 2017. And copper delivery prices in bonded warehouses are significantly lower than LME prices, reflecting weak physical demand. A rise in refined copper production in China in April allayed concerns about production cuts announced by major smelters in March. The data show that Chinese copper sellers are clearing their stocks as the domestic copper premium turns negative.

Then copper production is likely to increase in 2024. The Peruvian Mining and Energy Association (SNMPE) said that the current surge in copper prices to an all-time high will encourage Peruvian mining companies to take steps to address production bottlenecks. These efforts may increase the mine's marginal production by 5% to 10%.

Copper prices surged to record levels this week on growing concerns that global copper supply will not be able to meet ballooning demand for electric cars and renewable energy projects. Copper prices are rising in short supply, a good time for copper miners to expand production and an opportunity to boost performance.

China Minmetals Resources Co., Ltd. also said on Wednesday that it hopes to start mining copper from a new pit in Peru's large Las Bambas copper project by the end of the year, bringing some much-needed additional supplies to the increasingly tight global market. Over the years, Las Bambas's annual production has been well below 400000 tons, as community protests disrupted mining and hampered expansion. Troy Hey, executive general manager of MMG, said this level could be reached by 2025; preparations for the new Chalcobamba mine have begun.

Las Bambas received permission from the government to build Chalcobamba in 2022, but has been unable to start construction because of community opposition. The two sides have now agreed to start construction so that local workers and companies can start making money now, although there is still uncertainty about the details. Hey said that Las Bambas produced 300000 tons of copper last year and could produce as much as 320000 tons this year if the new mine starts operating in the second half of the year.

There is another potential to boost supply: Lundin Mining, Glencore and First Quantum Minerals Ltd. And so on, the global mining giants have poured into Argentina. Argentina's new government aims to attract foreign investment, bringing these companies closer than ever to mining huge copper mines in the red Andes.

For now, Argentina produces little copper, although it shares the same geological conditions as neighboring Chile. Chile is the world's largest exporter of copper. But if six of the more than 20 copper projects being considered are implemented, Argentina could become a major copper supplier by 2035, producing more than 1 million tonnes a year. According to Caem, a local mining group, annual exports are likely to exceed $8 billion.

Copper also came under pressure from an overnight rebound in the dollar, which hit an one-week high after the minutes of the Fed's April meeting were released. Policymakers are increasingly worried about persistently high inflation, according to the minutes. Some policymakers are also open to further interest rate hikes to curb inflation, although that seems unlikely. Nevertheless, in the face of stubborn inflation, the Fed is likely to keep interest rates high for a long time, and speeches by several officials this week showed that the central bank has limited confidence that inflation will reach its 2% annual target in the short term. Long-term high interest rates are bad for gold and other precious metals, and could dampen global economic growth.

Has the price of copper peaked?

The short squeeze in the US market in recent weeks and concerns about supply have also added to the upward pressure over the past month. There are many factors driving copper prices higher, so it is difficult to find a peak in the current market. However, commodity markets have a history of rapid pullback after overshoot, so copper prices are expected to fluctuate in the coming weeks and months, especially if there is some weakness in global economic growth and any loopholes in artificial intelligence narrative.

Looking ahead, some believe that copper prices seem to have risen too much because the "copper-gold price ratio" is already too high and is now at its highest level since October. However, on a five-year basis, this ratio does not look too outrageous and is likely to rise further.

Copper is considered an indicator of the global economy, so it is called "Dr. Copper". When the price of the red metal rises, economic activity picks up. The energy transformation is advancing, which will also bring a large demand for copper consumption. Artificial intelligence also requires more copper because the field relies on huge power consumption. Although the global economy remains faltering in the short term, demand for copper is still increasing.

Many believe copper prices will remain on the upward trend given the upcoming global deficit and geopolitical uncertainty. Jinrui Futures said in a report that the record rally in copper prices "shows signs of slowing down." However, China's vow to increase stimulus, coupled with expectations of tightening supply, could support price increases in the short term.

Huatai Securities released a research report also saying that fundamentally, SMM statistics Q2-3 that some domestic copper smelters have entered a centralized maintenance period, and the slowdown in electrolytic copper supply is expected to continue. The high prosperity of power grids and new energy sources is expected to remain unchanged, and policies such as "trade-in" may boost the prosperity of home appliances, automobiles and other industries. Q2 demand is expected to improve further;Q3 must be vigilant about the negative impact of the off-season on demand. In terms of policy, domestic stimulus policies are frequently introduced, which may continue to have a positive impact on copper prices in the short term. At the same time, according to Wind, as of May 7, Comex copper's non-commercial net long position ratio is at 70% since 2000, indicating that the recent market sentiment has been optimistic but has not reached its peak.

And there are few new copper projects, while existing copper mines are struggling with declining ore inventories. On the supply side, the grade of mines is declining, including insufficient capital expenditures in the medium and long term, because capital expenditures for copper mines may take 5 to 10 years to produce production. Copper demand will increase by 3.6% in 2023. Annual growth is expected to be about 4% in the next few years; there is a shortage of doctoral copper this year, especially in the next few years.

In general, there is still room for growth in copper prices in the medium and long term. On the one hand, the supply side is stirring, strikes and production cuts have led to supply contraction, and pricing power has come to the supply side; on the other hand, under the expectation of global interest rate cuts, copper price futures have pulled higher, and financial attributes have driven spot prices to rise. Analysts at Citi said they remain confident that copper prices will hit $15,000 a ton in the next 12 to 18 months.