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Highlights
- Copper price forecast lowered amid trade policy uncertainty and China stimulus concerns.
- Elevated tariffs and weak global manufacturing sentiment pose risks to copper demand.
- China’s stimulus may not suffice to lift copper demand amidst trade policy challenges.
The copper market is facing heightened uncertainty as trade policy concerns and a tepid manufacturing outlook weigh on prices. Recently, Citi revised its copper price forecast, lowering its short-term target to $8,500 per tonne, down from the previous estimate of $9,500 per tonne. This adjustment comes amid concerns that potential tariff increases under US President-elect Donald Trump and limited stimulus in China could impact global manufacturing and disrupt copper demand.
This revised outlook signals caution for copper, with prices already hovering around $9,007 per tonne, marking a two-month low. Citi's analysis highlights that potential higher tariffs and retaliatory measures could lead to a "global growth shock," particularly impacting the manufacturing sector beyond the upcoming year. While China's efforts to revitalize its economy continue, current policies may not fully support the anticipated recovery in global demand for industrial metals.
Copper's current positioning diverges significantly from the underlying sentiment in the manufacturing sector, where indicators like the Purchasing Managers’ Index (PMI) show persistent challenges. Although China’s manufacturing PMI returned to expansionary levels, the US and European PMIs reveal weak sentiment, with the US index reaching its lowest point this year and Europe marking a full year of contraction.
Despite these challenges, copper demand within China remains resilient, primarily driven by sectors linked to decarbonization, including electric vehicles, batteries, renewable energy, and power grid investments. However, prominent importers, such as Eagle Metal International, have warned that China may need to introduce additional stimulus to strengthen copper demand. Recent measures, such as a 10 trillion yuan ($2.1 trillion) bailout aimed at refinancing local government debts, have not boosted copper’s appeal as much as anticipated. According to Eagle Metal's vice general manager, Ni Hongyan, these debt refinancing efforts are not directly stimulating consumer spending or industrial demand, which could dampen copper’s growth prospects in the medium term.
Citi’s cautious outlook aligns with these factors, suggesting that China may wait for more clarity on US trade policies before implementing further actions. Additionally, the strengthening US dollar is exerting downward pressure on metal markets, as a robust dollar typically reduces the appeal of raw materials priced in the currency. With the Bloomberg Dollar Spot Index reaching its highest level since late 2022, concerns about renewed inflation and sustained interest rates further challenge copper's recovery potential.
Adding to these pressures, reports indicate that Robert Lighthizer may be appointed as US Trade Representative, a role in which he previously adopted a stringent stance on tariffs. Such developments suggest further volatility for copper, with the possibility of rapid tariff enactments weighing on the metal’s outlook.
