The recent sharp correction in copper prices has garnered significant attention from investors and analysts, with UBS Global Research indicating that current levels could offer a compelling medium-term entry point. This downturn follows a period of significant volatility in the copper market, where prices saw a substantial drop of approximately 20% from their highs in the second quarter of 2024. This decline has erased nearly 90% of the gains accumulated earlier in the year, presenting a noteworthy shift in the market dynamics.
The copper market’s recent correction is primarily attributed to speculative unwinding rather than fundamental weaknesses. In May, copper prices approached near-record highs, driven by speculative trading and market enthusiasm. However, as market corrections took hold, prices reversed sharply, highlighting the volatility inherent in commodities markets influenced by speculative forces.
Despite the current macroeconomic challenges, such as weaker-than-expected demand from major consumers like China and Europe, UBS remains cautiously optimistic about the long-term fundamentals for copper. The global copper market is anticipated to experience a tightening towards late 2024 and into 2025. This expectation is underpinned by the anticipated rebound in demand alongside limited growth in supply.
UBS’s analysis suggests that while the immediate outlook for copper prices may involve further testing of support levels, particularly around $8,500 per ton, the market could present attractive opportunities for investors. After breaching a critical technical resistance level at around $9,000 per ton, the copper market is now testing lower support levels. UBS forecasts a potential further decline of about 5% from current levels, which may see prices approaching the $8,000-$8,500 range.
On the supply side, the global copper market faces ongoing constraints that are expected to persist. UBS has a conservative outlook for 2024, projecting minimal growth in global mine production. This cautious stance reflects updated guidance from major copper miners, many of whom have either reduced their production forecasts or are guiding towards the lower end of their anticipated production ranges for the year. Notably, UBS has factored in approximately 550,000 tons of supply disruptions year-to-date, underscoring the ongoing challenges faced by the copper mining industry.
The combination of these factors—speculative unwinding, constrained supply, and anticipated demand recovery—suggests that while the copper market may not see an immediate sharp rebound, current price levels could offer a strategic buying opportunity. Investors who are able to navigate this period of volatility might find favorable conditions if prices dip to the $8,000-$8,500 range. UBS’s forecast of a tightening market by late 2024 aligns with broader expectations that supply constraints and a subsequent demand rebound will drive future price increases.
Overall, the copper market’s recent correction, coupled with a conservative supply outlook and anticipated demand recovery, presents a complex but potentially rewarding landscape for investors. The current market conditions, while challenging, may offer opportunities for those looking to enter the market at favorable levels before expected tightening and recovery take effect.