Prices of surged to the highest point since June 2022, buoyed by a weakening dollar as traders prepared for an extended period of monetary tightening in the United States. In turn, commodity strategists at Citi updated their copper price outlook, identifying their next stop for the commodity over the next three months.

Copper prices rally

Copper prices reached their highest levels in 22 months on Thursday, propelled by continued buying from funds, a weakening dollar, and tightening inventories.

Despite this surge, which has seen copper prices increase by 13% this year, physical demand in China, the metal's largest consumer, remains subdued, according to Citi analysts.

In London Metal Exchange (LME) trading, three-month copper prices advanced 1.3% to $9,705.50 per metric ton, briefly peaking at $9,739—marking its highest point since June 2022.

“The underlying narrative remains very positive, both from a challenged supply perspective and with regards to cyclical improvements in global growth,” said a Macquarie analyst.

“However, the near-term move looks to be driven by financial flows, both discretionary and systematic moment driven, and is arguably getting ahead of itself now.”

Meanwhile, the most actively traded June copper contract on the Shanghai Futures Exchange closed up 2.8% at 78,780 yuan ($10,883.02).

Simultaneously, the fell, moving away from its recent five-and-a-half-month high reached on Tuesday.

Comments from Federal Reserve officials earlier in the week have reinforced expectations that monetary policy will remain tight. A weaker dollar generally makes dollar-denominated metals more affordable for investors using other currencies.

On the LME, hedge funds have notably increased their net long positions in copper to levels not seen since February 2021, driven by signs of recovery in China's industrial sector and disruptions at major mines.

These disruptions have squeezed margins at Chinese processing plants, which produce over half of the global supply, potentially leading to reduced refined metal output.
Despite expanding domestic smelting capacity, China's refined copper imports rose 6.9% year-over-year in the first quarter. Moreover, an index of China’s manufacturing industry indicated growth in March for the first time since September of the previous year.

Citi updates its forecast

In a Friday note to clients, Citi strategists said the latest surge in copper prices took the commodity above their bullish forecast of $9,700 per ton.

Now, the prices are likely on track to advance to $10,500 per metric ton “in our new base case (and averaging $10k/t in 2Q and 3Q’24, versus $9.5k/t previously),” strategists wrote.

“In our (new) near-term bull case prices could even reach $12k/t over that time frame,” they added.

Citi noted that copper often serves as a more forward-looking indicator compared to many other physical commodities, such as oil, which tend to reflect near-term physical fundamentals more closely.

They attribute copper's “quasi-equity-like” characteristics to its relatively low demand and supply elasticities and high levels of investor positioning volatility compared to physical balances.

Moreover, the strategists strongly advise corporate consumers to hedge their copper exposures over the next three years or to consider maximizing their hedging levels during this ongoing secular bull market “since the case for raising ‘firm value’ through consumer hedging is strongest in advance of identifiable secular bull markets,” they said.