Over the past month, copper prices have experienced notable fluctuations driven by a mix of global economic factors, particularly developments in the United States and China.

U.S. Monetary Policy and Economic Signals

In the United States, the Federal Reserve's actions have significantly impacted copper prices. Early in the period, the Fed initiated a monetary easing cycle with a larger-than-usual half-percentage-point interest rate cut. While such cuts can stimulate economic activity and boost demand for commodities like copper, the aggressive reduction also raised concerns about underlying economic weaknesses. Indicators showed that U.S. manufacturing growth had stalled and housing activity remained soft, even though consumer spending was robust. These mixed signals led to uncertainty in the market, causing copper prices to fluctuate.

Investors closely watched the Fed's subsequent meetings, anticipating further rate cuts to support a slowing economy marked by moderating inflation and slowing job growth. Expectations of additional easing influenced market sentiment, as lower interest rates can weaken the U.S. dollar, making dollar-priced commodities like copper cheaper for international buyers and potentially increasing demand.

China's Economic Slowdown and Demand Concerns

China, the world's largest consumer of copper, showed signs of economic slowing, which weighed heavily on copper prices. Key economic data revealed that industrial output growth slowed to a multi-month low, retail sales weakened, and producer price deflation worsened. These factors signaled a struggling economy and raised concerns about reduced demand for copper.

Analysts adjusted their forecasts accordingly. Macquarie downgraded China's expected copper demand growth for 2024 from 2.9% to 1.2%, citing decreased consumption in grid-related sectors. Goldman Sachs also lowered its 2025 copper price forecast, suggesting that the anticipated inventory depletion and price rally would be delayed.

Positive Signs and Seasonal Factors

Despite these concerns, there were encouraging signs from China that helped support copper prices at times. Copper inventories in Shanghai Futures Exchange warehouses dropped to six-month lows, indicating that demand might be stabilizing or improving. The Yangshan copper premium, a key indicator of China's import demand, increased, reflecting healthier demand.

Seasonal factors also played a role. As China's peak construction season approaches, typically starting in mid-September, demand for copper usually rises due to increased construction activity and infrastructure projects. Copper wire rod manufacturers reported increased orders, partly because grid companies ramped up production to meet annual targets.

Global Market Dynamics

Globally, the interplay between the U.S. and Chinese economies created a complex environment for copper prices. While hopes for economic stimulus in China and potential U.S. rate cuts provided some support, ongoing concerns about demand and economic health kept the market volatile. Chile's significant increase in copper exports highlighted robust supply but wasn't enough to alleviate demand concerns.

Investor sentiment was also influenced by currency fluctuations. A stronger U.S. dollar made copper more expensive for holders of other currencies, potentially dampening demand. Conversely, expectations of U.S. rate cuts that could weaken the dollar offered some optimism for increased copper purchases internationally.

Conclusion

In summary, copper prices over the past month have been shaped by a delicate balance of economic indicators, policy decisions, and market expectations. The uncertainty surrounding economic growth in the U.S. and China—the two largest players influencing copper demand—has led to price volatility. While there are signs of stabilizing demand, particularly due to seasonal factors in China, concerns about global economic health continue to create an unpredictable market for copper.

Joseph Carboni
Marketing, Operations & Technology Manager
Shupe Carboni & Associates