Copper price rallies, BofA points to looming supply crisis

Copper price surges to fresh 14-month high on supply fears, China optimism

Copper prices soared to a 14-month peak on Monday, driven by concerns over tightening supply and growing optimism about demand from China.

On Monday, copper’s price per ton surged by as much as 1.7% to $9,484.50, marking the highest intraday level since January 2023, before paring some of the gains. Over the past two months, the value of the crucial industrial metal has rallied by close to 15%.

This rise in copper prices comes amid production disruptions at key mining sites, which have led smelters to face unprecedented costs for securing mined ore. With Chinese factories — which are responsible for over half of the global refined copper output — considering collective production cuts, the market is feeling the pinch of potentially reduced supply.

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BofA analysts say copper supply crisis is here

Copper was thought to be headed toward a supply crisis as the world adopts electric vehicles and other carbon reduction measures. The onset of that crisis is now clear, according to Bank of America metals strategists led by Michael Widmer. The supply woes, coupled with elevated demand in an improving global macroeconomic environment, led the analysts to upgrade their copper price forecast to above $10,000 per ton — up 8% from their previous projection.

“The much-discussed lack of mine projects is becoming an increasing issue for copper. This, along with investment in green technologies and a rebound of the global economy, should lift prices to US$10,250/t (465c/lb) by the fourth quarter,” they said in a note cited by MarketWatch.

The sentiment was echoed by Daniel Hynes, Senior Commodity Strategist at Melbourne-based ANZ Bank, on April 8:

“Copper rose to its highest level since January 2023 as it faces tightening supply and an improvement in the economic backdrop. The recent disruptions to major mines are starting to ripple through the industry. A group of 13 major copper smelters in China is preparing for a possible 10% production cut due to a collapse in treatment and refining charges. A bigger cutback is unlikely with long-term contract fees still profitable”.

Copper demand from China on the up

Investor confidence in China, the world's second-largest economy, is also on the upswing.

Indications of economic strengthening, such as a year-high in China's official manufacturing purchasing managers index (PMI) for March, alongside robust exports and increasing consumer prices, are fueling hopes for a resurgence in Chinese demand for copper — and putting upward pressure on the price of the commodity.

In a copper market overview on Monday, Ewa Manthey, commodities strategist at ING, wrote:

“Last year, rising demand for renewables and EVs in China already offset the slump from the more traditional sectors like the property market. “We expect this shift in demand drivers to continue this year.”

She added that the main catalyst for the copper price rally was the looming supply deficit:

“The main catalyst for copper’s rally is the unexpected tightening in the global mine supply, most notably First Quantum’s mine in Panama, which has removed around 4000,000 tonnes of the metal from the world’s annual supply. In addition, Anglo American said it was cutting output by 200,000 tonnes. And Codelco, the world’s biggest copper producer, is struggling to recover from the lowest output in a quarter of a century.

Most recently, Ivanhoe Mines reported a 6.5% quarterly drop in output at the Kamoa-Kakula mining complex in the Democratic Republic of Congo.

Copper smelters in China have pledged to curb output in response to a tightening copper ore market and following a collapse in spot treatment and refining charges to record lows. Spot charges in China plunged to $2.30/t last week, according to weekly data from Fastmarkets. They are now down more than 95% since the beginning of the year.”

At the time of writing on April 9, the LME copper price was last cited as $9,411.50, as per the exchange’s website.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.