Copper is on the cusp of significant market disruptions. In case you haven’t been following along, a 50% import tariff will go into effect on August 1. The U.S. government rolled out a 25% tariff. To be clear, now domestic consumers are the ones freaking out and hoarding supplies in an effort to hedge against possible rising prices. The situation has left industry experts and investors closely monitoring copper’s price movements, which are pivotal given the metal’s importance in various sectors.
As the tariff deadline approaches, analysts are zeroing in on strategic price points. Given the long-term bullish outlook for copper that we hold at TD Cowen, these levels are key. Copper prices may be heading for $6, then $7, in the near future. This projection, done off of Fibonacci extensions, indicates very bullish trends if the demand continues to increase. The market is clearly preparing for eventual near term retraces, as we can see with big support levels established near $4.50.
Supply and Demand Dynamics
The coming tariffs have conspired to form a different copper market perfect storm. Demand We’re seeing big jumps in demand as buyers scramble to stockpile copper before the tariff goes into effect. This frenetic pace of activity is indicative of an overwhelming sense of urgency felt by U.S. manufacturers and builders alike. For most electronics, copper is the go to material—from electrical wiring to plumbing.
As it stands now, the first meaningful support for copper is at about $4.50. If the correction goes much deeper it will drive prices closer to the $4.00 level, which has shown to have consistent demand in the past. Historical trading volumes indicate that $4.00 is indeed an important price level. If this figure comes into play once again, it might trigger a new wave of buying crazes.
If copper prices should tumble back down towards the $3.00 area, it would represent a major change in market sentiment. The $3.00 level is the lower bound of copper’s trading channel. This price has been the macro long-term point of control ever since 2006. A breakdown below this threshold could indicate a demand collapse, which would have wide-ranging implications for the broader equities market.
Market Reactions and Forecasts
Copper is more than a mere commodity. It is regularly touted as a bellwether for economic prosperity. Its movements are watched intensely by investors hoping to glean clues as to the health of industrial activity and core market stability. Analysts warn that if copper prices fall to $3.00, it would likely lead to a risk-off sentiment across financial markets. This studied shift is likely to put further downward pressure on equities. Economy-wide, it would disproportionately impact sectors that benefit from strong copper performance, like the industrials, energy and semiconductor industries.
The risk from a possible demand collapse is even more dangerous. Investors could take a drop in copper consumption to mean that a general economic malaise is setting in. This misconception can erode investor confidence in the equity markets, often leading to chain sell-offs in related sectors. This interconnectedness further stresses our previous point that when copper prices rise, the repercussions stretch further than just the commodity—setting the stage for broader inflation.