Copper Prices Plunge Amid Rising Inventories and Global Recession Fears

Copper prices have plummeted to a two-month low as rising global stockpiles and fears of an impending economic recession weigh heavily on the market. The London Metal Exchange (LME) three-month copper prices dropped to $8,714 per metric tonne on August 5, a significant decline from the record high of $11,104.50 per metric tonne reached on May 20. Similarly, the most traded September contracts on the Shanghai Futures Exchange closed at 71,390 yuan per tonne ($9,934/t) on August 7, down from a historical high of 88,940 yuan per tonne on May 20.

The decline in copper prices has been driven by a surge in global exchange copper stocks, which soared to a three-year high of 556,033 metric tonnes on August 2, up from 215,269 metric tonnes in December 2023. This increase is largely attributed to rapid output growth and subdued demand from China, the world’s largest consumer of copper.

Global refined copper production saw a 6% year-on-year increase from January to May, fueled by capacity expansions in China and the Democratic Republic of the Congo (DRC). Chinese smelters alone added approximately 800,000 tonnes per year of new capacity, primarily in the second half of 2023. CMOC, a diversified metals and minerals producer, reported a doubling of copper production from its DRC operations to 313,400 tonnes during the first half of 2024.

Further production increases are anticipated as new projects come online in the latter half of the year. US-based mining giant Freeport McMoran recently completed the construction of its Manyar smelter in Indonesia, with a production capacity of 300,000 tonnes per year, set to begin copper cathode manufacturing soon. Additionally, Indonesia’s Amman Mineral Nusa Tenggara and China’s Jinchuan Group are expected to add significant capacity in the coming months.

Despite the surge in output, copper demand growth has lagged, particularly in China. Demand is projected to increase by only 2-3% this year, hindered by a 21.8% decline in the completion of new housing projects during the first half of the year. The power grid sector, China’s second-largest consumer of copper, has also seen moderate demand growth, with investments shifting toward aluminum-intensive ultra-high voltage grids.

Emerging sectors such as new energy vehicles and solar photovoltaics have seen steady copper demand growth, but not enough to offset the slowdown in the real estate and power grid sectors. Market participants remain cautious about the overall outlook.

Macroeconomic concerns have further exacerbated the situation. Weaker-than-expected US employment data for July, coupled with declining manufacturing indices in both the US and China, have fueled fears of a global recession. The US Federal Reserve’s emergency meeting on August 5, following a collapse in Japan’s stock market, has added to the uncertainty.

However, some positive factors may support copper prices in the near term. A continued shortage of copper concentrate feedstock and the suspension of several Chinese secondary copper processors due to a tax rebate cancellation may lead to production cuts. Additionally, a strike at BHP’s Escondida copper mine in Chile could further tighten supply.

The rapid development of the artificial intelligence (AI) industry in the US is expected to drive copper demand in the grid system, particularly in states like Virginia, where commercial electricity demand has surged due to the growth of AI databases.