Motilal Oswal bets copper can test new highs this year: Here's what'll it take

Copper inventories in LME warehouses have hit their highest levels since September 2021

Prices of copper - a key input in electrification- fell to a four-month low of $9,000 per tonne after touching the psychological $11,000-mark earlier this year, as demand jitters, sluggish Q2 growth, and a lacklustre China stimulus weigh.

However, experts are not writing off a rebound in copper yet, betting that the future is still bright with global energy transitions set to supercharge demand, said Navneet Damani, Head of Commodities and Forex Research at Motilal Oswal in a recent note.

Damani anticipates a recovery in copper prices, potentially reaching new life highs of over $11,000 on the LME, and a possibility of even hitting $11,500 later this year. On the MCX, he expects prices of copper futures to range between Rs 1,000-1,020, and is advising investors to buy on dips around $8,500 on the LME, and Rs 750 on the MCX.

ALSO READ: Global selloff sends copper in a bear market, down 20 percent from highs seen in May

Copper's near-term woes: Soft demand, recession fears

The ongoing challenges facing the copper market include rising global inventories, softer demand in major economies, and a surge in China's refined copper exports, which have cumulatively cast a shadow over short-term prospects. Copper inventories in LME warehouses have hit their highest levels since September 2021, while Shanghai Copper stocks have soared by 240 percent on-year to a four-year peak, Motilal Oswal note said.

China's significant presence in the global copper market — accounting for 75 percent of smelter capacity growth since 2000 and controlling 97 percent of smelting and refining capacity— underscores that an economic weakness in China along with recessionary fears in the US and Europe are limiting copper's growth.

Additionally, China's Third Plenum — the widely-tracked conclave of Chinese Communist Party officials — has not taken enough steps to address the ongoing property slump, further contributing to the decline in copper prices.

ALSO READ: What stopped the copper rally in its tracks?

What lies ahead?

Damani has suggested that potential rate cuts, liquidity infusions, and inventory reductions are ways to trigger a rebound in industrial metals. Around 75 percent of market participants are pricing in a 25 basis point rate cut in September Fed meeting, significantly up from 47 percent a week ago, showed CME-FedWatch tool.

Global energy transition efforts and technological advancements also offer optimism for copper's future. As a critical resource for renewable energy, electric vehicles (EVs), and artificial intelligence (AI) technologies, copper demand is expected to double, reaching 50 million metric tons by 2035, with the highest demand coming from the US, China, Europe, and India, as forecasted by analysts at S&P Global earlier.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.