Copper prices rose vertiginously on Thursday off the back of expectations of interest rate cuts in 2024 that will prompt economic activity and therefore demand and reductions in supply caused by mine closures.
On the London Metal Exchange, the three-month copper price reached $8,565 per tonne (/t), up 2.8%, the biggest daily gain since 9 January 2023.
On the Comex market in New York, copper for delivery in March rose by 3.1%, reaching $8,580/t.
Jerom Powell, Chairman of the Federal Reserve, said the historic interest rate rise is likely to be over as the inflation rate has fallen faster than expected in the US and the evaluation of borrowing costs comes “into view”. A fall in interest rates would lower the cost of borrowing and stimulate economic growth, driving demand for copper.
Furthermore, expectations of the rate cut have pushed the dollar index to a four-month low, making dollar-priced base metals cheaper for foreign currency buyers, increasing demand.
Konstantinos Venetis, commodities economist at GlobalData TS Lombard, said: “Renewed expectations for easier Fed policy have pulled the dollar lower, not least versus the Chinese Yuan, fuelling ‘risk on’ sentiment. Coupled with lower copper inventory levels and concerns over supply following the closure of one of the world’s largest mines in Panama, this has pushed copper prices higher.”
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The closure of the First Quantum Minerals’ flagship copper mine in Panama following weeks of protests has certainly dented global supplies of the metal. In 2022, the mine produced around 1.5% of global copper supply. At the end of November, Panama’s Supreme Court ruled First Quantum’s contract to operate the mine unconstitutional.
Supply disruptions could alter the surplus narrative for the year ahead, according to Ole Hanson, head of commodities at Saxo Bank.
“Supply disruptions, and now the prospect for lower funding costs, could trigger a long-awaited re-stocking of copper,” Hanson said.