Citi Research revised its forecast for copper prices on Wednesday, citing trade tensions between the US and China, and poor demand outlook.
The forecast pegged copper prices on the London Metal Exchange at $8,500 per ton in the near term from the previous estimate of $9,500 per ton.
Citi expects copper prices to average $9,000 per ton during the fourth quarter of 2024.
The research agency attributed the downward revision in copper prices to concerns over the resilience of global manufacturing demand, according to a Reuters report.
Manufacturing remains a critical driver for copper demand across the globe.
US-China trade tensions
The downward revision to prices come amid concerns over worsening trade tensions between the US and China.
After Republican Donald Trump secured victory in the 2024 US presidential elections, the dollar jumped, pressuring commodity prices.
Copper prices on LME fell more than 6% from last Tuesday as a stronger dollar made the red-metal more expensive for overseas buyers.
The Trump administration is expected to hike tariffs on all imported goods from China, including metals.
This is likely to feed into higher inflationary pressures, while making everything in the US costlier.
Trade may be affected between the two countries, thereby limiting demand for copper.
Also, Trump’s stance on the decarbonisation process would affect copper’s demand as well.
Trump is expected to roll back several climate regulations passed under the previous presidency as he is in favour of more production of oil and gas in the US.
China stimulus disappoints
Last week, China’s National People’s Congress introduced a $1.4 trillion stimulus package to finance local government debt.
This was met with disappointment from the metals sector as the market was expecting concrete and focused measures to prop up specific sectors.
Barbara Lambrecht, commodity analyst at Commerzbank AG, said in a report:
A strong US dollar and the disappointing announcements by the Standing Committee of the National People’s Congress (we reported) are putting pressure on metal prices.
China has announced several fiscal measures since September, which has failed to ignite optimism about the growth prospects.
Analysts believe that China’s government is waiting to see what policy changes the Trump administration brings in, before announcing a substantial stimulus package.
Rise in smelting capacities in China
Analysts at Commerzbank said that a rise in smelting capacities in China was also weighing on copper prices.
In the first nine months of the current year, the production of refined copper was more than 5% higher than in the same period of the previous year.
According to the German bank, China has expanded its smelting capacities significantly. The country is expected to account for half of the world’s supply.
According to the research group Shanghai Metals Markets, capacities are set to rise to 16 million tons next year, the bank said.
At the time of writing, the three-month copper contract on LME was at $9,031.50 per ton, down 1.3% from the previous close.
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