The commodities super-cycle is making a resounding comeback, as evidenced by copper’s robust performance since the beginning of the month.
On Monday, London Metal Exchange (LME) three-month copper reached $9,640.50 per metric ton, its highest level since June 2022. While the announcement of new U.S. and UK sanctions on Russian metal might have contributed, it was only a minor factor. Copper is currently trading just below that peak at $9,560.
According to analysts at Citi, copper priced below $9,500 per ton is now considered cheap. They have raised their forecasts to an average of $10,000 in the fourth quarter of this year and $12,000 in 2026. Many other analysts share this bullish sentiment, citing supply constraints, a shift in the manufacturing cycle, and increased demand from copper-intensive sectors in the energy transition.
The potential for additional demand from artificial intelligence, particularly in larger data centers, adds another dimension to copper’s bullish narrative.
While physical copper users are not witnessing the anticipated boom in their current order books, forward-looking funds are driving the current price surge, focusing more on future prospects than immediate fundamentals.
Investment funds have significantly increased their bets on higher copper prices, with long positions reaching record levels in the London market. Similar bullish sentiments are observed in the CME copper contract.
Despite this optimism, shorts have not yet capitulated, keeping net long exposure below the peaks seen in February 2021. The sustainability of this trend hinges on whether copper can maintain its upward momentum.
This resurgence in copper investment aligns with a broader shift among fund managers towards commodities. Gold prices are soaring, and industrial metals are rebounding after a weak first quarter, reflecting a positive outlook for both traditional and new-economy growth.
Market activity in copper futures has surged, indicating growing investor interest. However, short-term indicators remain tepid, with European manufacturing still in recessionary territory, and Chinese import appetite showing signs of decline.
While current market dynamics may appear lukewarm, investor conviction in future shortages and strong demand is driving prices higher. Citi suggests that the realization of demand strength and physical shortages may not be necessary to sustain the copper rally.
Copper’s potential for future promise is motivating investment managers to place their bets, fueling further speculative activity and contributing to the ongoing rally.
Looking ahead, Citi argues that copper is entering its second mega bull rally of the century, with the potential to surpass previous record highs. Fund activity is expected to play a pivotal role in driving copper’s bull narrative, underscoring its significance as a price driver in the coming years.