Copper futures are crashing on Tuesday on new data suggesting softer global demand and fears that China will clamp down on rising prices in the hard commodities. The industrial metal has been on a tear this year, rallying nearly 24% on strong fundamentals: lower supply, strengthening demand, and lackluster output. Will this upward trend continue in the second half of 2021, or has the red metal peaked?
July copper futures plummeted $0.1765, or 3.9%, to $4.3505 per pound at 14:37 GMT on Tuesday on the New York Mercantile Exchange. Copper has slumped nearly 8% over the last month.
Last week, Chinese authorities promised to monitor commodity prices and potentially take action to prevent dramatic increases in copper prices. Market analysts believe that in addition to cracking down on futures markets and speculative trades, Beijing might release state reserves of copper, aluminum, and zinc.
While China’s actions could be the most consequential for the copper market, industry observers are also alluding to muted demand. Non-commercial traders have trimmed their net-long positions, while copper imports have eased.
Meanwhile, investment bank Jefferies warned in a research note that prices may not be high enough to encourage new production, even though they are trading at record highs.
“Even with the copper price recently reaching an all-time high, for example, the incentive price to build greenfield (and some brownfield) projects is still above the current price in some cases as longer lead times greatly impact project returns.
While the risk of higher taxes and royalties in Chile and Peru is a major focus in the markets at the moment, these issues are likely to become relevant in other resource-rich regions as well. Periods of high commodity prices tend to stir up thoughts of resource nationalism in poor countries, and windfall profit taxes should be expected.”
As a result, the price environment might remain bullish for copper for the foreseeable future.
A rising greenback has also affected copper prices. The US Dollar Index (DXY), which gauges the buck against a basket of currencies, has advanced nearly 1% over the last month. A stronger greenback is bad for dollar-denominated commodities because it makes it more expensive for foreign investors to purchase. Year-to-date, the DXY is up 0.65%.
In other metal markets, July gold futures tumbled $4.60, or 0.25%, to $1,861.40 per ounce. July silver futures plummeted $0.354, or 1.24%, to $27.69 an ounce. July platinum futures shed $15.90, or 1.36%, to $1,149.60 per ounce. August palladium futures edged up $0.40, or 0.01%, to $2,757.00 per ounce.