Copper plates are seen on wagons ready for loading at the Mufulira refinery, operated by Mopani Copper Mines Plc, in Mufulira, Zambia, Friday, May 6, 2022.
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Copper prices rose on Tuesday to their highest level in nearly six weeks, supported by fresh investor demand and market optimism about the possibility of an imminent U.S. interest rate cut.
Copper for September delivery traded at around $4.223 a pound in New York, extending gains after hitting its highest since July 22 in the previous session.
Meanwhile, three-month copper futures on the London Metal Exchange rose to trade at around $9,378 a metric ton.
Prices of the red metal have been rising steadily in recent weeks, paring losses after falling to a four-month low in early August.
The recent rally in copper prices was partly boosted by renewed demand from hedge funds that had previously reduced their exposure to the metal “during the recent deep correction by 24%,” said Ole Hansen, head of commodity strategy at Saxo Bank.
“We believe the worst of the correction is over, but before copper can make a stronger recovery, demand fundamentals need to improve, perhaps supported by restocking via lower funding costs once the (Federal Open Market Committee) begins its long-awaited rate-cutting cycle,” Hansen said in a research note published Friday.
“Until then, traders will continue to look for signs of improvement, particularly through the reduction of high inventory levels in warehouses monitored by the three major futures exchanges,” he added.
Optimism about interest rate cuts
Late last week, Federal Reserve Chairman Jerome Powell reinforced already high expectations for a U.S. interest rate cut at the central bank's September 18 meeting.
“It's time to adjust policy,” Powell said on Friday, though he declined to give precise indications on the timing or extent of the cut.
Copper prices are expected to benefit from lower interest rates in the United States, as looser monetary policy is expected to ease financial pressures on manufacturers and construction companies.
A worker ties copper wire rods before loading them onto a truck in Huai'an, Jiangsu Province, China.
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Demand for copper is widely considered an indicator of economic health. The red metal is critical to a variety of sectors including the energy transition, and is integral to the manufacturing of electric vehicles, power grids and wind turbines.
Wall Street banks are bullish on the outlook for copper prices this year, citing supply risks and improving demand for transition metals for energy.
In fact, analysts at Citigroup said in early April that the second copper bull market this century had begun now — about two decades after the first such cycle.
“Technically, the rally has stalled after hitting resistance at early August highs of $4.22/lb in New York and $9,320/t in London. A break of this level would open the door to an extension to $4.31 and $9,500, respectively,” said Saxo Bank’s Hansen.
