Copper: Potential Price Rebound Could Signal Resilient Global Economy Ahead

  • Commodities Analysis
  • Editors Pick
  • A stronger dollar and a poor outlook for China's real estate market are weighing on copper prices
  • But, demand for copper should gradually increase in the coming years
  • Meanwhile, Antofagasta, a mining company has increased copper production. Could it be worth buying now?
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The beginning of the year has seen copper prices correct, influenced by several factors.

One primary factor is the periodic strengthening of the U.S. dollar , traditionally seen as detrimental to the demand side in the broad metals and commodities market.

Adding to the selling pressure are key economic indicators from the Chinese economy, including the GDP and industrial production readings. While not faring poorly in comparison to forecasts, the data raised concerns among investors due to a notable slowdown in the real estate market.

This market is a significant source of demand for copper. Furthermore, anticipations of a slowdown in the U.S. and major economies in Europe have been contributing to price softness.

Looking ahead, however, medium and long-term forecasts have begun to predict an increase in demand coupled with limited supply, exerting pressure on the valuation of this crucial metal for the global economy.

Investors of all assets are advised to keep an eye on copper prices as proxy of global economic activity.

What Does Chinese Economic Data Mean for Copper?

Yesterday, comprehensive data from the Chinese economy were released, revealing the following:
China Economic Data

At first glance, except for retail sales, the data are close to forecasts, but the main problem is the slowing real estate market.

Prices in this segment, according to data for December, are falling at the fastest rate since 2015, while the value of transactions is 6.5% lower than the same month in 2022.

The real estate industry's challenges in China are not new and intensified in 2022, marked by difficulties in managing the substantial debt of over $300 billion held by China's second-largest developer, Evergrande.

Since then, ongoing restructuring proceedings have been in progress, yet no conclusive results have emerged.

If Beijing permits the slowdown to persist, the potential risk of a significant meltdown could manifest in a decline in copper demand.

Copper Demand Set to Rise in 2024

Analyzing forecasts for global copper demand, the consensus oscillates between 4-5% depending on the source (assuming no crash in China).

Growth is expected to be underpinned by an economic recovery, which, however, is not expected until the second half of the year, and a dovish turn in monetary policy by the Fed, which should weaken the US dollar.

We should continue to witness the continuation of the development of RES, which, due to its specifications, generates increased demand for the aforementioned raw material.

On the other hand, the supply side may have problems, as Goldman Sachs (NYSE: GS ) estimates that the global copper deficit this year will be around 0.5 million tons.

This is due to continued limited recycling and the closure of First Quantum Minerals (OTC: FQVLF ) in Panama, which is the largest mine in the world.

This Copper Producer Could Be Worth a Punt

Given that although in the short term it is possible to maintain supply pressure on copper quotations yes in the long term permanent shortages can elevate the price of the raw material.

In this situation, it is worth paying attention to Antofagasta (OTC: ANFGF ), which is a significant player in the Chilean and global copper production market.

According to the company's recent announcement, it plans to increase annual output by about 170,000 tons mainly due to productivity gains at its Los Pelambres and Centinela mines.

Looking at the company's fundamentals, it still has more than 10% upside potential and a very strong financial position, as represented by its financial health index.

Antofagasta Fair Value Data

Source: InvestingPro

Therefore, the current correction can be used to try to buy at a relatively better price, possibly waiting for a reaction around the nearest support in the $1500 price area.


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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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  • Nilesh Doshi @Nilesh Doshi
    for feb and march copper in india will be up or down
    Like 0

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