Copper prices have, of late, come under pressure, despite relatively friendly fundamentals. A weakening dollar, smaller deficit and no significant let up in demand ought to have pushed prices up. On the contrary, the price of the metal has actually declined by about 7 per cent from the peak in mid-February.

The fall can be attributed to escalating geopolitical tensions triggered by protectionist tendencies and risk of retaliatory action. Investor sentiment towards industrial commodities, including copper, is seen weighing on market prices. This is evidenced by a sharp decline in net long futures position in the bourses.

At the same time, copper stocks at the various exchanges have been rising since the start of this year, which, as some analysts interpret, may point to lacklustre demand.

However, economic activity in China — the world’s dominant producer and consumer — in the first two months of the year has been healthy and copper imports into the country have actually risen. In other regions too, especially in the euro-zone and in India, demand for the metal has been resilient, according to industry representatives.

At the same time, China’s restrictions on copper scrap imports may weigh on demand for the metal; but there are huge uncertainties associated with the policy.

So, the trajectory of copper prices will be determined by the growth in Chinese demand. There are already warning signs. Grid investment — a key demand segment — is slowing and so is housing sales growth.

Excess supply

From the supply side, both mine supply and refined production are set to rise. While mine output is poised to expand to 20.7 million tonnes, refined production, too, is set for an increase to 24.3 ml t. However, labour disputes and mine strikes, particularly in Latin America, present recurring threat to supplies.

As some observers warn, the copper supply chain is susceptible to disruption, notably from industrial action and from tighter environmental regulation.

Interestingly, from a smaller deficit anticipated earlier, the market could actually get into a surplus, if demand does not hold up well. At the same time, any supply-side disruption can quickly wipe out the surplus, if any.

Scrap will play an increasingly important role this year, too. Last year, the price rally brought out huge quantities of scrap into the market that boosted secondary production.

A recent factor driving interest in the copper market is the unfolding electric vehicle (EV) story. But, clearly, the EV saga is just beginning and it is a medium-term play.

Price outlook

In a situation of subdued growth in demand and modest upturn in supply, copper prices have the potential to fall from the current levels of $6,750 a tonne to around $6,500 a tonne towards the end of the year, subject to all the uncertainties in supply.

If supplies are disrupted for any reason, the market can move up rapidly to $8,000 a tonne.

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