UBS sees copper correction as a buying opportunity by Investing.com

Investing.com — The recent sharp price correction appears to have largely run its course, positioning current levels as a compelling entry point for medium-term investors, according to analysts at UBS Global Research.

While macroeconomic conditions remain challenging, particularly with weaker-than-expected demand from China and Europe, the long-term fundamentals for copper remain solid.

UBS expects the market to tighten towards the end of 2024 and into 2025, driven by limited supply growth and the eventual return of demand.

The copper market has seen a correction in 2024, with prices down about 20% from second-quarter highs, erasing nearly 90% of year-to-date gains. This decline was fueled primarily by speculative recovery rather than fundamental weakness.

As copper neared record highs in May, speculation played a key role in driving prices higher, which then reversed sharply as market corrections intensified.

UBS signals that after breaking the technical resistance level of around $9,000 per tonne, the price of copper could test support levels near $8,500 per tonne, representing a potential further downside of around 5%.

However, UBS does not foresee any immediate macroeconomic or fundamental triggers that would lead to a rapid market tightening or sharp price rebound in the third quarter of 2024.

Despite this, the outlook remains cautiously optimistic for a tightening market through the end of 2024, making current levels an attractive buying opportunity, especially if prices fall into the $8,000-$8,500 range.

On the supply side, mine production continues to face significant constraints. UBS maintains a conservative outlook for 2024, projecting minimal growth in global mine supply.

This cautious stance is based on updated guidance from major copper miners, many of which have either cut production forecasts or are heading towards the lower end of their 2024 ranges.

“After considering ~550kt of outages per year, we estimated

Looking to 2025, UBS anticipates only modest supply growth of around 2.5%, driven by the ramp-up of major projects such as Kamoa-Kakula and Oyu Tolgoi. The Cobre Panama situation remains a wildcard, with UBS assuming a restart in 2026.

The long-term supply outlook remains limited due to a limited supply of new projects, reinforcing UBS’s view of a tightening of the physical market over the next 12 to 18 months.

Copper demand was weaker than expected, particularly in China, where economic conditions remain fragile following a “buyers’ strike” in the second quarter of 2024.

UBS notes that while Chinese demand appears to be normalizing, there is low confidence in the likelihood of substantial economic stimulus or a strong recovery in the near term.

In Europe, demand is stagnant with no significant signs of improvement, while US demand, although somewhat better, is not expected to significantly boost global demand in the near term.

Despite these challenges, UBS maintains a positive medium-term outlook for copper. The brokerage expects demand to eventually rebound on the back of resupply, improved sentiment and the emerging global shift towards renewable energy, electric vehicles and infrastructure development.

These age-old demand factors, combined with tight supply, could support high copper prices for an extended period of time.