Copper price down as Fed boosts dollar

The Fed’s plans, which would reduce liquidity in the market, have helped to drag back copper prices from the $10,747.50 a tonne record high touched in May.

Copper for delivery in September fell 1.5% from Wednesday’s settlement price, touching $4.259 per pound ($9,369 per tonne) midday Thursday on the Comex market in New York.

The Fed’s switch to a more hawkish stance was signaled at its June policy meeting, pushing the dollar higher and making assets priced in the greenback more expensive for holders of other currencies.

“The (Fed’s minutes) saw a continuation of the sell-off that started June 16 when the Fed surprisingly sent hawkish signals by bringing forward rate hike projections,” said ING analyst Wenyu Yao.

“Over the last two weeks the macro market is seeing a capitulation of reflation trade … that is giving a lot of pressure to metals, especially copper.”

China raised expectations that it could ease monetary policy to support its economy, which Saxo Bank analyst Ole Hansen said was interpreted by the market as a sign of weakness in the world’s top metals consumer.

Supply gap
A copper supply gap will emerge in the second half of the decade, according to the inaugural edition of Critical Metals for a Sustainable World, a new monthly publication by Capitalight Research.

The report notes that world demand for copper will grow by 3.8% in 2022 to about 25 million tonnes. And while supply of the red metal over the next few years will be bolstered by new copper mines coming on stream, such as Ivanhoe’s Kamoa-Kakula in the Democratic Republic of Congo, Mina Justa in Peru and Timok in Serbia, along with new projects under development such as Teck Resources’ Quebrada Blanca Phase 2, it expects that “the current mine expansion wave will peak in 2024 and a large projected gap in required mine supply will open up in the second half of the decade.”

The report also points out that demand for copper “from renewable power projects, energy storage and electric vehicles could double by 2025 to 8.5 million tonnes,” and notes that “unlike recent years, prices will be driven less by short-term macro-economic developments in China and more by rising demand linked to global decarbonization.”