Copper Price Forecast: Demand, Supply Dynamics Favourable

Copper price has remained under pressure this year despite the positive catalysts in the industry. It was trading at $3.87 on Friday, much lower than the year-to-date high of $4.36, This means that copper has fallen by over 11% from the year-to-date high, meaning that it has moved into a correction zone.

Copper supply and demand issue

Copper prices have been under pressure even as macro events favor the metal. For one, demand for copper is still at an elevated level as the global manufacturing sector bounces back. 

Governments in the United States and other countries are set to dramatically change their energy mix in the coming years. This is partly because many of these countries have an aging infrastructure and that needs to be updated. Also, they are investing in clean energy, which will need copper to be successful.

Further, copper is seeing more need in electric vehicles, which are now gaining market share around the world. EVs have more copper parts than internal combustion engines (ICE). Therefore, it is clear that demand for copper will remain there.

On the other hand, new copper mines are not being found at a faster pace. Most of the mines in existence today in places like Peru, Chile, and the Democratic Republic of Congo (DRC) are old ones. Therefore, there is a likelihood that supply will not keep up with the demand in the next few years. Analysts expect that the demand and supply gap will be about 6 million tons in the next decade. An analyst told Bloomberg:

“There’s no way we can supply the amount of copper in the next 10 years to drive the energy transition and carbon zero. It’s not going to happen. There’s just not enough copper deposits being found or developed.”

Another risk that is hurting copper supplies is that governments have become more focused on environmental issues. As a result, the average period of identifying, getting approvals, and developing a new mine is ten years. 

Copper price forecast

Copper chart by TradigView

On the 4H chart, we see that copper price has been in a downward trend in the past few weeks. As it dropped, the metal found a strong support at $3.82, where it failed to move below on April 27 and March 16. It has also formed another small double-bottom pattern. In price action analysis, this pattern is usually a bullish sign.

Therefore, while the overall trend is bearish, I suspect that copper has now bottomed and that it will resume the bullish trend in the near term. In the long term, copper investors are set to do well as the metal moves into a deficit.

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