Trade tensions, hawkish comments from Fed and broad sell off has weighed on prices
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- LME Copper CSP prices continued its two-month downtrend, fell by 1.3% during December’24 to an average of USD 8,955/ton on account of trade tensions, hawkish comments from Fed signaling fewer rate cuts in 2025 due to resurgence in inflationary pressures and robust economic data, broad sell of along with record high surplus in copper markets.
- LME 3-m forward to cash spread is in an average contango of USD 117/ton during Dec‘24, against an average of USD 86/ton during the previous month, indicating ample copper availability in spot markets.
Executive Summary: Copper
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- LME Copper CSP prices continued its two-month downtrend, fell by 1.3% during December’24 to an average of USD 8,955/ton on account of trade tensions, hawkish comments from Fed signaling fewer rate cuts in 2025 due to resurgence in inflationary pressures and robust economic data, broad sell of along with record high surplus in copper markets. These factors have contributed to a bearish market sentiment, suppressing copper prices.
- On the production front, Global copper mine production have seen improvement bringing Year-to-date mine copper production stood at 18,740 KT, an increase of 1.6% YoY or 297 KT, this growth was driven by capacity expansions in China and Chile (El Teniente mine, BHP’s Escondida mine). Whereas China spot treatment charges have turned negative and annual benchmark for Tc’s have fell to historic low of USD 21.50/ ton, primarily due to overcapacity, particularly in China, impacting negatively on smelter income and output. As a result, global refined copper production is likely to remain flat in 2025.
- On demand front, Global refined copper consumption growth is expected to slow down seasonally due to lunar holidays in China. Year-to-date consumption rising by 2.4% YoY to 22,484 KT during the first ten months of 2024.
- On the macro front, The US Dollar Index climbed to a two-year high of 108.408 in December 2024, driven by the Federal Reserve’s policy actions and forward guidance. The Fed cut its policy rate by 25 basis points at the December FOMC meeting, marking a total reduction of 100 basis points this year and setting the fed funds rate at 4.25%. Despite the cut, policymakers signaled growing caution on inflation and the pace of further easing. In China, softer consumption trends with retail sales growth (+3%) in November dropping below 5-year average (+3.2%).
- Overall, copper prices are likely to trade in the range of 8650- 9550 USD/ton in the coming months