Copper plunges after rally, pulled back by weak demand and rising stocks, analysts say
Copper fell about 9% in two days as investors retreated, with analysts blaming weak manufacturing demand, growing inventories and prospects of higher mine output.
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By Torontoer Staff
Copper prices plunged roughly 9 per cent over the last two trading sessions, erasing a recent surge to record highs and reflecting what analysts describe as a correction to fundamentals. The retreat follows evidence of weaker demand, swelling inventories and expectations of increased supply.
Supply and demand indicators suggest the rally that pushed copper to US$14,527.50 per metric ton last week was detached from market realities, several analysts said, and further downward pressure is likely.
Investor flows, not fundamentals, fed the rally
Analysts say the late surge in prices owed more to investor positioning than to tighter physical markets. Macquarie analyst Alice Fox said heavy inflows had crowded the market while physical demand remained weak, leaving a sizable surplus last year.
We think the market was in an around 600,000 ton global surplus last year. Prices are still too high, and to fully reflect fundamentals they should be below US$11,000 a ton.
Alice Fox, Macquarie
The latest fall began when investors pulled back after the U.S. administration named Kevin Warsh as the next chair of the Federal Reserve, which pushed the dollar higher and reduced appetite for dollar-priced commodities. Prices hit a three-week low at US$12,414.50 on Monday.
Demand remains fragile
Global manufacturing has faced pressure over the past year from tariffs and trade tensions, contributing to softer consumption of industrial metals. While some regions reported modest expansions in factory activity in January, those gains came off a low base after months of contraction.
China, which consumes more than half of the world’s copper, will also see a pause in industrial activity during its Lunar New Year holiday in mid-February. That seasonal shutdown traditionally reduces short-term demand from the country that will account for a large share of estimated 26 million tonnes of global copper output this year.
Higher stocks and rising supply
Inventories held in London Metal Exchange, Shanghai Futures Exchange and Comex registered warehouses have swelled, exceeding 930,000 tonnes combined. That number has more than doubled since August, a clear signal of weaker physical uptake.
Last year’s gains in copper prices were partly driven by supply disruptions at mines, including accidents in Indonesia and Chile. However, production increases at new or expanded operations in places such as Zambia and Mongolia are expected to add more metal to the market this year, offsetting some of the earlier shortfalls.
While we forecast copper in a deeper deficit market year on year, we still do not see the market as historically out of balance. Fundamentals certainly do not support copper at current levels.
Natalie Scott-Gray, StoneX
What this means for industry and markets
Copper is a bellwether for industrial activity because it is used in wiring, construction and electrical components. Prices above levels that incent new mine investment do not automatically translate into stronger physical demand. If prices remain elevated, investment could rise, but that is unlikely to be immediate. In the near term, a combination of softer demand, ample inventories and the potential for increased mine output points to continued pressure on prices.
- Investor repositioning after Federal Reserve appointment lifted the dollar and reduced commodity demand.
- Manufacturing weakness and trade tensions have dented copper consumption.
- Seasonal shutdowns, notably China’s Lunar New Year, temporarily curb demand.
- Rising warehouse stocks and planned production ramps suggest more supply ahead.
Analyst outlook
Most analysts expect further downside from recent levels, though forecasts vary. Some see a pullback toward levels that better reflect current demand and supply balances, while others warn that supply risks and specific mine disruptions could still create periodic tightness. Overall, the consensus is that the market has returned to a more balanced state after a speculative-driven rally.
For buyers and businesses that rely on copper, the recent volatility underlines the value of hedging strategies and close monitoring of inventory flows. For investors, the episode highlights how quickly sentiment and macro moves can reverse price momentum in commodity markets.
Copper’s sharp correction after a record run reflects a market recalibrating to weaker demand and rising supplies. Analysts say the metal’s earlier highs exceeded fundamentals, and that prices will likely need to fall further before they fully align with physical market conditions.
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