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Copper Prices Stuck In Limbo

Via AG Metal Miner

Overall, the Copper Monthly Metals Index (MMI) rose 2.18% from March to April. However, what is the price of copper currently?

Copper prices continued to trade sideways this past month, creating both uncertainty and risk. Meanwhile, traders and investors continue to closely monitor the market for any signs of a breakout in either direction. Prices would need to show clear strength in any direction to create a new trend.

Economic Outlook Weighs on Prices

As prices trade sideways, the copper market remains caught between worsening economic conditions in the West and a long-term bull narrative fueled by projected supply shortages. 

According to the IMF, the world appears poised for a sharp slowdown, including the slowest economic growth since 1990. Indeed, managing Director Kristalina Georgieva warned growth could total just 3% over the next five years. She primarily cited high inflation, rising interest rates, and the compounding impact of multiple global crises as reasons for the slowdown.

In the U.S., the recent collapse of Silicon Valley Bank has already created a drag on lending, which will curb domestic growth. Meanwhile, the most recent output cuts from OPEC+ will add upside pressure to global inflation.

Low Inventories Add Support to Copper Prices as Green Movement Forebodes Supply Squeeze

Part of why copper prices have yet to see any meaningful downside breakout is because the global economic outlook does not paint the full picture. For instance, LME inventories continue to trend downward and now sit at their lowest levels since 2005. In fact, many projections suggest that the ongoing transition toward renewables will see demand continue to rise. Moreover, experts predict demand will outpace supply through the remainder of the decade.

While economic constraints may mute demand on the consumer level, government-funded infrastructure projects will add a strong counterweight. Meanwhile, China's economy continues to recover, albeit slowly, which will even more pressure to tight supply. Simply stated, there just isn't enough copper supply to support growing global demand.

Of course, the long-term bullish narrative does not necessarily mean copper prices will only increase either. Already, investment funds have begun to steer away from bullish bets on copper. According to Reuters, "the investment community has turned net short of CME copper for the first time in five months." Historically, U.S. recessions are always associated with a downturn in copper prices. This is something many investors seem to expect amid a worsening economic outlook. However, tight supply will limit the extent of any such downturn should it come to fruition. 

Chile Copper Production Slumps, Peru Mining Capacity Returns Following Protests

On the supply side, the world's largest copper producer, Chile, may provide little relief. Indeed, according to the Chilean Copper Commission, February saw production drop by 3.4%. While the commission still expects production to grow over the next seven years, multiple delays across various mining projects will slow that growth more than originally anticipated.

Meanwhile, turmoil in Peru appeared to ease as copper mines impacted by blockades resumed production. While risks of disruptions remain, both Las Bambas and Antapaccay gradually resumed mining over the last few months and are now operating at full capacity. These returns saw copper production rise 10.8% year over year in February, according to data from Peru's National Institute of Statistics and Information. This came after output declined in January. Adding further relief to global supply, the Peruvian Ministry of Energy and Mines announced 39 new copper mining projects would become operational throughout 2023.

By Nichole Bastin

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