Copper Fundamentals Strong, Iron Ore Weak: BofA By Investing.com

Investing.com — Analysts at BofA Securities have outlined a clear view on two major industrial metals and , presenting starkly contrasting fundamentals.

Copper is in a strong position due to strong demand, tight supply and more investment in energy transition projects.

Conversely, iron ore is facing challenges from falling demand, particularly from China’s real estate sector, which has traditionally been a major consumer.

Copper prices have shown remarkable resilience in 2024, rising 6% year-to-date (YTD) despite global macroeconomic challenges.

BofA analysts attribute this strength to several key factors. One factor is the low mine reserve; reduced mine production and refining challenges have constrained copper supplies.

Treatment and refining charges (TC/RC) fell sharply, highlighting the difficulties faced by smelters in processing copper in the current market conditions.

In addition, energy infrastructure spending, particularly grid expansion projects related to decarbonisation, has significantly supported copper demand.

In China, investment in grid expansion offset weaker demand in other sectors such as housing, providing crucial support for the metal.

In addition, supply chain disruptions and limited concentrate availability have exacerbated copper supply constraints, leading to expectations of a market shortage and keeping prices high.

“Manufacturing activity should stabilize as the Fed cuts rates, so we maintain our constructive view on copper through 2025,” the analysts said.

As a result, copper prices are expected to continue to rise, with forecasts suggesting a rise to $10,750/t by 2025.

Historically a major consumer of steel and iron ore, China’s real estate sector has sharply reduced its demand.

In 2010, it accounted for 50 percent of China’s iron ore consumption, but by 2024, that share has fallen to just 20 percent, driven by a government crackdown on speculative investment and a long-term slowdown in housing starts.

In addition, steel production, closely linked to iron ore demand, was also down. While demand from other sectors, such as machinery, provided some compensation, it was not enough to offset the decline in construction.

This has resulted in negative margins for steel mills in China, prompting further production cuts. On the supply side, major producers such as Australia and Brazil continued to increase their iron ore exports, exacerbating the oversupply situation.

“With a surplus of 190 mt, or 7.5% of the total expected supply for next year, this suggests that prices may fall below $80/t, to encourage major miners to either not add to supply or to is taking some of the higher-cost operations, particularly in China out of the market,” analysts said.

The differences between the copper and iron ore markets stem from their supply and demand fundamentals.

Copper, which is central to the global transition to green energy and is in short supply from mines, is likely to maintain its price support.

On the other hand, iron ore, dependent on China’s struggling real estate sector and rising global supply, faces continued pressure on prices.

BofA remains bullish on copper due to strong structural demand and expects price appreciation to persist as global economies stabilize and green energy projects ramp up.

While the future of iron ore looks bleak, oversupply and weak demand could lead to further price declines unless drastic production cuts are implemented.