Copper Hits $10K, Goldman Eyes $12K Amid Supply Fears

Key Takeaway

• Copper prices surged past $10,000 a ton amid bets on Federal Reserve rate cuts and Goldman Sachs' warning of supply shortages.
• Goldman Sachs raised its year-end copper price target to $12,000 a ton due to expected deficits and potential inventory "stockout" by Q4.
• Market optimism is fueled by soft US jobs data and China's growth pledges, despite concerns over high prices driving consumption down.

Copper Prices Surge Amid Fed Rate Cut Speculation

Copper prices have soared, breaking through the $10,000 per ton mark as speculation grows that the Federal Reserve may lower interest rates this year. This surge was catalyzed by soft US jobs data, which has led to increased bets on rate cuts, with the swaps markets indicating a 53% chance of a cut by year-end, up from 40% at the end of April. Goldman Sachs Group Inc. has also raised its year-end price target for copper to $12,000 a ton, citing intensifying supply stress and the potential for a "stockout episode" by the fourth quarter due to open-ended and mounting metal deficits.

Global Demand and Supply Stress

The global demand for copper is on the rise, with the world's mines struggling to keep up. This has been further exacerbated by recovery signs in global factory activity and supply tightness, particularly for raw materials shipped to smelters. However, there are concerns that the metal's gains, which have seen copper prices increase by 17% in 2024, are driven by speculation and may not be sustainable in the long term. Critics, such as Duan Shaopu of the China Nonferrous Metals Industry Association, warn that high prices could discourage consumption and lead to aluminum substitution.

Congo-China Deal Tied to Copper Prices

In a significant development, the Democratic Republic of Congo (DRC) and China have updated their minerals-for-infrastructure agreement, which is now directly tied to copper prices. The deal requires copper prices to stay above $8,000 per ton for the DRC to receive $324 million annually for infrastructure projects through 2040. This agreement underscores the critical role copper plays in the DRC's development strategy and highlights China's substantial investment in Africa's mineral sector.

Street Views

• Goldman Sachs Group Inc. (Bullish on Copper):

  "We continue to forecast a shift into open-ended and mounting metal deficits from 2024 onwards... There’s potential for a 'stockout episode' — in which inventories run extremely low — by the fourth quarter."

• Duan Shaopu, China Nonferrous Metals Industry Association (Neutral on Copper):

  "The metal’s gains have been primarily driven by speculation, and may fade as high prices discourage consumption and spur aluminum substitution."