We’ve all heard the story. “The green energy movement will keep the price of copper high!” But how optimistic are the long-term prospects for copper realistically? Here at MetalMiner, we have looked into this question extensively. Ultimately, we concluded that copper futures do indeed have a lot of long-term potential. However, is it possible that the potential is more bearish than bullish?
Copper futures: past analysis and future speculation
Copper prices (LME primary price) are still relatively high compared to almost a decade ago. In MetalMiner’s monthly outlook report, we detail the recent rally and discuss whether or not prices will continue to rise. Since June 22, however, copper prices have cooled off noticeably.
The recent copper rally saw additional strength thanks to China’s recent government stimulus packages. MetalMiner’s monthly metals index trend (a combination of US, LME, Korean, Japanese, Indian and Chinese copper) has been trending sideways for four months with minimal up and down movements. Individual sources such as the Comex copper spot price and the LME three-month primary price also recorded a constant sideways trend overall over the last six months.
Many factors influenced copper prices last year. Examples include geopolitical unrest in Peru and Chile, the growing green energy market and speculation that long-term copper supplies could become scarce. All of these things have helped copper to sideways with minimal breaks through support or resistance zones. The question is when will copper see a big rebound? And when it does, will it go up or down?
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Why copper futures could rise
Copper historically reflects the global economy. This is because it is widely used in various sectors including power generation and transmission, construction, manufacturing equipment and electronics. Renewable energy infrastructure such as wind turbines, solar panels and electric cars also rely heavily on copper components. In fact, electric vehicles require about four times as much copper as internal combustion engine cars.
Many analysts believe that the shift from fossil fuels to alternative energy sources will further increase copper’s importance. In addition, ongoing concerns about potential future copper resource shortages continue to support bullish sentiment for copper futures. In fact, the average age of the ten largest mines in the world is 95 years. Every year, miners have to dig deeper to extract lower-grade ore, making the entire operation more expensive. In addition, copper production has declined in recent years, leading to a supply deficit as demand increases. Of course, these factors could potentially provide further support for copper futures.
Overall, copper’s historical connection to the global economy, its significant role in renewable energy infrastructure, and concerns about future scarcity and supply-demand dynamics should continue to contribute to expectations of increased demand. If so, it makes sense to expect higher copper prices in the long term.
Not sure why you should trust MetalMiner’s opinion on copper futures direction? Take a look at our track record.
Why Copper Prices Might Fall
There is also a significant risk of copper falling over the long term. One explanation for the expected drop in copper prices is that some expect supply to increase rather than decrease. In China, there is significant bi-directional flow of information in the copper futures markets. As China is one of the largest copper producers, significant disruptions or restrictions in the supply chain could result in significant volatility.
It’s also worth noting that some people believe that copper demand will fall rather than rise. As the world continues to slowly recover from the COVID-19 pandemic, it may take significantly longer for demand to return to pre-pandemic levels.
In addition, the availability of alternative materials to copper could lead to a fall in global copper prices. As technology advances, materials that can replace copper in various applications are becoming more widely available. For example, some electric cars are already using aluminum wire instead of copper. This trend towards alternative materials can lead to lower copper demand and therefore lower prices.
Sideways copper markets can change quickly. MetalMiner Insights helps purchasing organizations manage market volatility by providing metal price forecasts and advice on when metal should and shouldn’t be bought. Make an appointment for a consultation.
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