Yahoo Finance Time to buy Copper? Low price could offer investors opportunity
The price of the red metal has taken a tumble as demand has disappointed in top consumer China
The price of copper for delivery in July (HG=F) extended losses on Wednesday as it traded down 0.20% to $3.76 (£3.02) per pound as risks of a slowing global economy, including in China, keep up the pressure on the red metal.
However, analysts believe the price of copper is likely to get a boost with demand on the rise for it, prompting the question – is this a good opportunity for investors to buy the dip?
Copper key in energy transition
Vincent Boy, a technical analyst at IG, said in a dailyfx note that while the price of copper may be low now, it has a bright future given its role in the energy transition.
“The red metal is used in many industries, such as real estate, telecoms, and even increasingly in activities related to the energy transition. In fact, apart from wind turbines, which require a lot of copper, it takes 4 to 8 times more copper to build an electric car than for a combustion car.
“This suggests a bright future for copper over the next few decades, as demand is expected to soar,” he added.
Copper link to Chinese growth
However, Robert Farago, head of asset allocation at Hargreaves Lansdown, told Yahoo Finance that the demand for copper over the last two decades has been linked to strong Chinese growth, which he said is expected to slow significantly over the next decade.
“Construction is a significant portion of that demand and is also set to fall as a percentage of that growth. On the plus side, the shift from oil and gas to renewable energy sources will be a metal-intensive process, which should boost demand over the coming decade.”
Farago also noted how the last decade has seen a significant decline in major discoveries of copper.
“'Dr Copper' is seen as a leading indicator of global economic activity. It currently sits around the middle of its five-year trading range: in line with the mixed signals on the prospects for growth – with growth proving resilient over the last year, despite a consensus among economists that we are heading into a recession,” he added.
Read more: Renewable energy stocks: clean energy switch could benefit these companies
Analysts at Trading Economics have also highlighted how output from copper mines has not kept pace, tightening the supply balance.
“Copper inventories at the Shanghai Futures Exchange fell to under 135 thousand tonnes in May, the lowest this year, and those at the London Metal Exchange were under 60 thousand tonnes, the lowest since 2005. Also, Chile said this year's output is estimated to sink as much as 7% after the 10.6% decline in 2022,” it said.
Copper price outlook
As a result, Trading Economics analysts forecast copper to trade at $3.64 by the end of this quarter – and to trade at $3.41 in 12 months time.
Meanwhile, Goldman Sachs has also revised down its price forecast for copper to $8,698 per metric ton (mt) from $9,750, in response to slowing economic trends and fading momentum for a China recovery.
However, as earlier noted, there is also optimism on the outlook for copper prices this year with some analysts expecting a surge in demand for the metal, driven by renewable energy, electric cars and infrastructure upgrades. The Bank of America, for example, recently reiterated its year-end copper price forecast of $10,000 mt.
Read more: Mortgage costs driving buyers to 35-year loans to keep payments affordable
The question is, will the rise in demand be met with adequate supplies?
Piero Cingari, independent macro analyst, also shared his thoughts on the price of copper with Yahoo Finance and said he believes the metal has been more resilient than macro indicators would suggest, considering the weak momentum in global manufacturing activity and China's disappointing economic recovery,
“When compared to the contraction in the ISM manufacturing PMI in the US, copper should be trading below $3 per pound. As a result, I do not believe copper is "cheap" today. If we see signs of policy stimulus in China or a recovery in global manufacturing, I will become more bullish,” he added.
When considering any market predictions, keep in mind that commodity prices are highly volatile, making it difficult to accurately predict where prices will be at any given time in the future. Therefore, always do your own research – and don't invest money you can't afford to lose.
Watch: World Knows It Has to Collaborate on Green Economy: Howard
Download the Yahoo Finance app, available for Apple and Android.
