Copper nears record on China demand, supply fears

Copper extended its rise on Tuesday and is now closing in on a fresh all-time high, with a rebound in Chinese demand and concerns over global supplies serving as catalysts for the rally.

Prices in London rose another 2%, briefly touching $14,000 per tonne before paring gains. That marked the first time copper had risen above that level since it reached a peak of $14,500 per tonne back in January.

The red metal, often viewed as a bellwether for the global economy, has picked up momentum in recent weeks amid a confluence of tailwinds, such as a recovery in demand from top consumer China. Recent data shows that China’s copper inventory has been declining, a sign of demand picking up, while its state-owned trading company also gave a healthy demand forecast for the next decade.

Though satellite data from Earth-i showed a major decline in copper smelting activity last month, that should not come as unexpected given the seasonality trends, as the second quarter is usually used for maintenance before orders ramp up again in the third quarter.

War’s supply risk

Meanwhile, supply risks have also intensified amid the ongoing war in the Gulf region, as a squeeze on supplies of Middle Eastern sulphur is expected to impact global output. Sprott estimates that about a fifth of the world’s mined copper relies on sulphuric acid as an input in production. Also driving the rally were concerns about fuel availability in Peru, a major copper-mining hub.

These tailwinds have offset concerns over the economic fallout of the Iran war, given copper’s role as a key industrial metal. However, analysts at Sprott point to the clean energy transition as a major source for copper demand moving forward, overshadowing its traditional end-uses.

Data centre infrastructure and the energy transition are all set to significantly outpace the growth projected for core economic uses, the firm said.

“By 2040, these strategic segments could account for 45% of total copper demand, up from 32% in 2024,” it predicts.

Prices have so far recovered from a 10% drop during the first month of the Iran conflict. For the year, the red metal has gained 9.3%.