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Supply and demand dynamics propel copper prices to 15-month highs

Copper prices have surged to their highest levels in 15 months, reaching $4.3 (€4.01) per pound in April before settling at $4.2 per pound. This uptick reflects concerns over dwindling supply and robust demand, underpinning the metal’s status as a barometer of overall economic health.

Chinese smelters’ reduced production has significantly constrained copper supply, exacerbated by potential output cuts of up to 10% in 2024 due to impending regulations. Additionally, operational challenges in global copper mines have further tightened supply, with issues ranging from legal disputes to environmental concerns.

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Zambian copper mines, vital to the country’s economy, have been particularly affected by disputes, resulting in production declines. Similarly, the closure of Panama’s Cobre Panama mine due to environmental issues has added to supply constraints. Challenges also persist in South American mines, including tax hikes, social unrest, and environmental sensitivities.

Despite these hurdles, demand for copper remains robust, driven by the green transition, particularly in electric vehicles and renewable energy infrastructure. However, concerns linger about the sustainability of the current copper rally. Colin Hamilton, commodities analyst at BMO Capital Markets, cautions that while prices may temporarily soar, the market tends to self-correct over time, with potential demand adjustments mitigating prolonged price increases.

The cyclical nature of copper prices, influenced by the time it takes for new mines to reach production, suggests that supply dynamics could shift in the future, affecting price trajectories. While the current rally reflects supply constraints and strong demand, market observers remain vigilant about potential shifts in the balance between supply and demand.

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