Copper Prices Drop 20% from May Highs Due to Global Selloff

Concerns about demand in China and other regions have led to a significant selloff in global copper prices, pushing the metal into a bear market with a 20% decline from the peak levels seen in May this year.

Copper prices have dropped below $9,000 per tonne for the first time since early April. Over the past month, copper futures have fallen by up to 7%, reaching near four-month lows, with analysts predicting further declines, reducing net long positions on the London Metal Exchange (LME) by 60%. Check Copper Price Today: MCX Copper Rate Today Live

Copper, essential for wiring and batteries, has seen prices continue to decrease as China's economic growth struggles. Recent data revealed that China's GDP growth for the June quarter fell to its lowest level in five quarters, raising concerns about sustained demand.

"A lack of major policy shift in China weighed on sentiment,” Bloomberg quoted an ANZ Group analyst earlier in July. The recently concluded Plenum by the Chinese Communist Party also failed to instill confidence in significant measures to boost demand.

The outcome of China's Third Plenum, a closely watched meeting of Chinese Communist Party officials, did not introduce any major initiatives to address the prolonged property slump.

With weakening demand, inventories have been rising. Both in the LME and in Shanghai, copper warehouse inventories tracked by the LME have more than doubled since May.

However, analysts remain optimistic about higher prices within the next 6-12 months, anticipating a rebound in demand by 2025, which could push prices to higher levels again.

In recent months, inflation has trended downward, while the unemployment rate has risen by half a%. As the economy shows signs of slowing and the market prices in more rate cuts, copper has lost most of its 2024 gains since peaking in mid-May. These losses stem not only from expectations of a cooling economy but also from a sharp decline in copper demand, evidenced by rapidly increasing inventories.

As mentioned in Friday’s Daily Market Commentary, “Whenever there is a market decline, we humans must try to rationalize the 'chaos' by assigning a reason to it. The most recent rationalization is that the 'AI trade' is dead. However, as demonstrated by better-than-expected revenue and earnings from Google (GOOG), most earnings growth comes from the largest companies. Consequently, it is doubtful that managers will abandon these companies soon. Furthermore, hedge funds need to move large amounts of capital at a time, and these large-cap companies are the only ones providing the necessary liquidity.

Every time these 'Mega-Cap' companies pull back, the media assigns a new rationale. The reality is that these companies have posted stellar returns this year, and some profit-taking is expected, as seen at each previous market peak over the last two years. The chart below compares the 'AI trade' favorites—Apple (AAPL), Microsoft (MSFT), Google (GOOG), and Amazon (AMZN)—to the S&P 500 index. (NVDA is excluded due to its significant rally skewing the chart.)

When the S&P 500 index moves, there's a high correlation with the 'Mega-Cap' stocks, which is unsurprising given they make up about 35% of the index. The key point is that this correction is likely similar to past corrections, and it's highly probable that once this corrective process concludes, large-cap stocks will resume their leadership."