London copper prices saw a marginal dip on Monday, settling at $14,377 a metric ton, after a remarkable 10-week consecutive rally. This slight decline is attributed to stronger-than-expected US jobs data, which has increased the likelihood of a Federal Reserve rate hike. The US nonfarm payrolls report showed an addition of 162,000 jobs in August, significantly exceeding economists' expectations of 56,000, while the unemployment rate remained stable.
Despite the immediate pressure from rate hike expectations, copper remains near historical highs, driven by persistent concerns about supply shortages. The International Copper Study Group reported a 1.1% decline in global mine output during the first half of the year, with major producers like Codelco and Freeport-McMoRan Inc. experiencing double-digit reductions. Morgan Stanley, which initially projected growth, now anticipates mine supply to be flat or slightly lower, potentially marking the first annual decline since 2017. Furthermore, Chile, a top producer, recorded its weakest second-quarter output in 19 years and has revised its full-year production forecast down by 2.6%.
Adding to supply tightness, inventories in Shanghai Futures Exchange warehouses dropped 13% last week to 63,000 tons, their lowest since January 2024, and LME copper stocks also decreased by 475 tons. The narrowing COMEX-LME price gap and declining cancelled LME warrants have eased concerns about an LME short squeeze. However, continued demand from the US market could still challenge short-position holders. Overall, while interest rate hike speculation created some volatility, the underlying narrative for copper remains one of robust demand against a backdrop of constrained and potentially declining supply.
