Copper is the 3rd-biggest piece of the JE Dunn QCI materials section, and it has been making more headlines in the past few months than usual.

As with most industrial metals, China is the largest consumer of copper in the world, taking in over half of the world’s supply. Prices for copper have moved in a similar pattern as steel, with an extremely large run-up in late 2020/early 2021. The price increases were followed by some bumpiness and then a dip that got us halfway back to pre-pandemic levels. That dip was followed by another rally.

Prices have moderated since March of 2023 and analysts are still waiting on China to rebound and drive the price of copper back up. The most recent rally at the end of 2022 was tied to China’s announcement that it would drop its tight COVID lock-down policies, reopening the economy and driving up demand expectations. Those expectations didn’t materialize however as China’s economy has mostly sputtered along, and copper prices have continued to ease in response. According to analysts at Morgan Stanley, Copper inventories have been increasing at a greater rate than usual, suggesting that there will be some further downward price pressure in the near future. Domestic demand for copper is picking up though, especially as manufacturing construction spending continues to increase and residential building is on the mend. This won’t be enough on its own to drive prices higher in the short-term.

On the production side, Chile is the largest single supplier of copper (about 25%) followed by Peru (roughly 10%). Chile has experienced environmental challenges to its output such as water shortages along with some political instability, bringing production estimates down for the year. Political turmoil, including widescale protests in Peru, have impacted many of the copper mines, hampering production there.

With supply and demand forces in flux, we are bound to see more choppiness in copper pricing, though estimates for later-term global economic recovery would likely help push demand out ahead, resulting in net upward price pressure. Until then, we can expect more weakness in the months ahead.