Copper prices have experienced a significant decline, with benchmark three-month copper on the London Metal Exchange down 1.9% at $13,390, and COMEX copper prices sliding 2.9% to $6.17. This downturn is primarily attributed to a strengthening dollar and the hawkish repricing of Federal Reserve policy expectations, with markets now anticipating a rate hike in September and fully priced in for October. Investors are drawing down exposure to cyclical growth stocks, which impacts metals linked to the energy transition and rising power demand.
Despite these near-term pressures, the fundamental outlook for copper remains strong. Lower LME inventory, increasing shipments to the US, and robust demand from Artificial Intelligence infrastructure and the energy transition are expected to underpin future demand. However, recent data from China has raised concerns about weaker demand, with retail sales falling 0.6% year-over-year and fixed asset investment dropping 4.1% year-over-year, both figures coming in below expectations. Investment growth also slowed across several Chinese industries.
The general macroeconomic environment sees investors reducing exposure to growth-sensitive sectors due to fears of tighter financial conditions and a slower economic pace. This sentiment has been exacerbated by corrections in technology companies. The price of copper has become increasingly intertwined with themes of electrification, AI infrastructure, and rising energy demand, making it more susceptible to periods of weakness in technology and growth assets.
Analysts note that copper faces persistent selling pressure amid risk-laden macro news and bearish technicals, with one expert projecting a typical volatility band between $6.0198 and $6.272 for the next two to three trading days. There is a 79% probability of further downside, suggesting a defensive stance unless resistance at $6.2758 is broken with conviction. Elevated uncertainty from ongoing geopolitical tensions and tariff threats also contributes to the bearish outlook. A significant reduction in energy prices could potentially ease inflationary pressures and challenge the market's assumption of a prolonged hawkish stance by the Federal Reserve, which could benefit both precious and industrial metals.
