Copper metal futures are down to $4.53 per pound because many traders believe that the world’s copper supply is too large since mine output has exceeded consumption for the past couple of years. Despite this price drop being inconsistent with prior forecasts of possible deficits, the constancy of the supply chain could be achieved in part by the use of the China mining method, prompting a huge stockpile besides a collapse in the smelter prices.
According to the most recent data, the amount of copper held in warehouse storage facilities is up more than threefold. This huge increase in inventories has puzzled most investors because it contradicts the expectation of a shortage that was there previously. This overproduction creates a situation where many copper-producing mining companies are pressed to lower production capacity, as it is the only method to stabilize copper prices in the market. The fact that market participants operate in a competitive environment makes it hard to implement joint action.
Furthermore, the situation in the copper market, a subset of the broader economic field, is affected by concerns about the global economy and the potential backlash that trade sanctions can trigger. Conversely to the mere targeting of steel and aluminum by US President Donald Trump’s recent threat of tariffs, trade disputes raise reservations about the commodities market and base metals in general. Having this in mind, industrial metal prices could fall under the influence of the increased trade conflicts since demand for commodities such as steel, aluminum, and copper has the potential to nosedive.
The copper industry is increasingly in the hands of China both as the largest metal consumer and the main manufacturer. The Chinese economic data released most recently added even more ambiguity to the guesstimations of what the future of copper demand is going to be like. That market segment, in addition to some sectors like e-vehicles are having a great run and copper demand is reaching its top, is a consumer segment that can improve efficiency by automating the manufacturing process.
One of the most interesting things that are happening in the copper market right now is the oversupply of the metal that, in its rippling effect, is having an impact on other sectors. For instance, some big mining companies are considering new investments and as such, are likely to either delay or even drop their projects, which were initially based on the assumption of a higher copper price. Therefore, the market may become more balanced in the long term, but in the short and medium term, this could be a reason for the high unemployment rate and lowered economic activities in the copper-producing areas.
Nonetheless, in spite of the oversupply concern, there are still some analysts who are confident in the long-run copper trend. They refer to the renewable energy technologies and the electric cars, in which the metal will play a key role, as the factors that will cause the demand for copper to increase in the next years. There is no doubt that it would be impossible for the market to go up until the saturated amount of supply is cleared. It will be thus essential for the industry in the upcoming months to show the world if supply and demand are able to find a new equilibrium in the global copper market.
