Copper prices have reached a new peak of $14,533 per metric ton, driven by constrained supply and robust demand from sectors like electrification and urbanisation. Investors are optimistic that stagnant mine supply could further fuel this rally, as Morgan Stanley revises its outlook to reflect a potential decline in production.
The supply outlook for copper has become increasingly cautious. Morgan Stanley, which initially projected an expansion in mine supply, now anticipates production to remain unchanged or decrease. This could lead to the first annual decline in copper mine supply since 2017, heightening expectations of tighter availability. The demand for copper has surged due to structural trends such as electrification, artificial intelligence, and urbanisation in emerging markets, while supply constraints persist.
The geopolitical tensions in Iran have exacerbated the supply challenges, particularly affecting the availability of sulfuric acid, a crucial component in copper extraction. Disruptions in the Strait of Hormuz have significantly tightened sulfur supply, impacting copper production. Chile, the world's leading copper producer, reported its weakest second-quarter output in 19 years and has reduced its full-year production forecast by 2.6%.
“Everyone is investing in copper, everyone likes copper. Supply will come, but the question is how quickly.”
Ruben Fernandes, Chief Operating Officer, Anglo American Plc
Jefferies analysts highlight that the latest industry production results reinforce the view that mine output remains tightly constrained, with risks skewed to the downside. Despite some major operations ramping up production, the overall supply remains limited. Last week, benchmark LME prices were poised for a 10th consecutive weekly gain, the longest streak since 1994.
Citigroup Inc. analyst Tom Mulqueen forecasts copper prices could reach $15,000 per ton by year-end, potentially rising to $17,000 if manufacturing recovers or demand from energy transitions and data centers strengthens. He downplays the threat from US inventory buildup, suggesting that stockpiles will unwind gradually.
“Even without tariffs, those stockpiles are likely to unwind gradually rather than flood back onto the global market.”
Tom Mulqueen, Analyst, Citigroup Inc.
Copper's strategic importance is growing as it becomes central to technological and energy transitions. The commodity bear market from 2011 to 2020 severely impacted the supply pipeline, with mining capex falling over 40% from peak levels. New copper mining projects typically take over 15 years to move from discovery to production, indicating that the rally may continue if demand trends persist.
Background
Copper has historically been a key industrial metal, but its role is expanding as it becomes integral to the next technological and energy transition cycle. The current market dynamics resemble the early stages of previous multi-year commodity cycles, with demand outpacing supply growth.
As copper evolves into a strategically important resource, its price trajectory will be closely watched. Investors and industry stakeholders are keenly observing supply developments and demand trends to gauge the potential for further price increases.
