The copper price hit a one-week high on Tuesday (April 25), after centrist Emmanuel Macron won the first round of the French presidential election.
Investors’ confidence in riskier assets increased following his victory, sending three-month LME copper up 0.9 percent, to $5,706 a tonne, by the end of the day. Earlier the red metal reached $5,722, its highest price in a week.
“Copper prices certainly got a boost from increased risk appetite with the centrist pro-European candidate Macron making it to the second round,” Karen Norton, senior analyst at Thomson Reuters GFMS, said via email. She added, “[but] the positive sentiment generated inevitably has faltered for now as the market focuses on more copper-specific data, such as disappointing import data out of China.”
Market participants will no doubt be watching to see how the next round of the French election, scheduled for May 7, impacts the copper price. But are there other factors to keep an eye on? Earlier this year, supply disruptions at major mines were a key issue in the copper market, and their effects are now starting to be seen.
Major miner Rio Tinto (LSE:RIO,ASX:RIO,NYSE:RIO) recently reported that its copper output dropped in the first quarter of the year due to a historically long strike at its 30-percent-owned Escondida mine in Chile. Meanwhile, Indonesian regulatory changes affected output at the company’s Grasberg mine, a joint venture with Freeport-McMoRan (NYSE:FCX).
While there’s been much discussion about how much those disruptions could affect overall copper supply this year, Norton said they were mitigated to a great extent by increased scrap availability.
“In the absence of further disruptions we still see the global copper market in surplus this year and indeed a larger one next year as more new projects are commissioned and idled capacity restarts,” she said. Norton added that copper demand growth is reasonable, but not sufficient to offset this surplus.
That anticipated surplus has many analysts thinking that the copper price will fall moving forward. For instance, according to Commerzbank (OTCMKTS:CRZBY) analyst Daniel Bresemann, copper remains vulnerable to further price corrections.
“Prices went too high and there was, and still is, correction potential,” he told Reuters. “To me, this is nothing more than a short plateau in the downtrend. I’m convinced that we’ll see copper below $5,500 in a relatively short period of time.”
Similarly, credit rating agency Moody’s is calling for copper to bottom at $4,409 to trade in a range of $4,740 to $5,180 through 2018, in line with recent price bands.
FocusEconomics panelists see the copper price floating down slightly from its current level, though they believe it should remain significantly higher than it was last year. They project that the metal will average $5,621 in 2017 and trade slightly lower in 2018 at $5,565.
On the flip side, Goldman Sachs (NYSE:GS) said in a recent note that it remains “constructive” on copper. Analysts at the firm believe the red metal should get a boost from activity in China’s property sector and a sharp slowdown in supply. The firm has not given a price outlook.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.