Copper price forecast as it nears a technical bear market
Copper price continued its downward trend this week, erasing some of the gains made earlier this year. It has dropped by almost 20% from its highest point in 2024, meaning that it is nearing moving into a bear market.
Industrial output falling
Copper, an important metal used in wiring, piping, and batteries has crashed hard and is on track to have its worst weekly performance since 2022.
The metal, often seen as a barometer of the global economy, has dropped sharply as concerns about a slowdown increase.
Recent economic data shows that industrial output is falling. On Monday, a report by the National Bureau of Statistics (NBS) showed that the economy slowed in the second quarter.
It expanded by 4.7% YoY, missing the expected growth of 5%, meaning that Beijing will need to implement more measures to hit the 5% annual estimate.
While China’s industrial production is still helping the economy, data shows that it softened in June. It slowed to 5.3% from 5.6% in the previous month. It grew by 6% in the first half of the year. In a note, analysts at ING said:
“Export demand has supported industrial production in the first half of the year, but this factor could begin to weaken in the second half of the year if global growth moderates, and if tariffs come into effect.”
China is the most important market for copper since it is the biggest buyer. A key challenge for the country is that the housing sector is still in trouble after the collapse of companies like Evergrande and Country Garden.
While Beijing has put measures in place to solve the crisis, recent data shows that house prices have continued falling this year.
Copper price also crashed as traders watched the country’s Third Plenum, a gathering of government officials. The meeting’s outcome was relatively weaker than expected as the leaders did not make any major policy announcements. Daniel Hynes, an analyst at ANZ Group said:
“A lack of major policy shift in China weighed on sentiment. That left investors disappointed that there wasn’t greater focus on tackling structural issues in the economy, such as the beleaguered property sector.”
Other countries have seen weak economic numbers lately. While the US industrial production rose for two months, manufacturing PMI has remained below 50 this year. In Europe, the idea of deindustrialization has continued, with industrial production falling in most countries.
Copper has some solid fundamentals
Despite the ongoing weakness, copper has some of the best fundamentals in the industry. First, there are signs that central banks have changed their strategies. Some key banks like the European Central Bank, Riksbank, Swiss National Bank, and Bank of Canada have all slashed rates this year.
Economists believe that the Fed will start cutting interest rates in its September meeting since inflation has recently dropped. Central bank cuts are usually positive for copper and other metals because they stimulate growth.
Copper demand is expected to grow faster than supply in the next few years. This demand will come as most countries implement huge infrastructure projects, especially in the power sector.
Many governments, especially in Europe and North America have focused on energy transition, a positive move for the metal.
Additionally, artificial intelligence (AI) is expected to boost copper demand because of the ongoing demand for data centers.
Data by S&P Global shows that copper demand will rise by 20% by 2035 to 30 million metric tons. Demand stood at over 25.3 metric tons in 2023.
Supply, on the other hand, has been under pressure as mine approvals are taking longer. For example, new mines are taking over a decade to gain approval by regulators.
At the same time, many countries have aged mines. For example, Chile’s copper output is still below where it was in 2019.
These fundamentals explain why BHP attempted to buy Anglo American and why Rio Tinto is said to be thinking about buying Teck Resources.
Still, some investors question copper’s bullish thesis because of the current weak demand from China and high inventory levels. Indeed, because of China’s slow recovery, some companies have started to export their surplus because of weak demand.
Copper price technical analysis
Turning to the daily chart, we see that the price of copper peaked at $5.17 earlier this year amid high optimism on demand. It has now crashed by over 16% and moved to its lowest point since April 11th.
Copper has also dropped below the key support at $4.35, its highest point on January 18th and its lowest swing in June. This price was also the upper side of the green cup and handle pattern. It has also moved below the 50-day and 100-day Exponential Moving Averages (EMA).
Copper has slipped below the Woodie pivot point while oscillators have pointed downwards. Therefore, copper will likely continue falling in the coming days as sellers target the second support of the Woodie pivot point at $4.07.
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