Copper prices are likely to hold support in the short term, despite the growing divergence with fundamental demand indicators, say analysts at BCA Research, who have upgraded the metal's rating to neutral from 'underperform' in their commodity sector asset allocation model.
BCA Research's chief commodities strategist, Rukayya Ibrahim, noted that copper has deviated from its traditional macroeconomic drivers, and the 'rally is driven by speculative forces rather than current fundamentals.'
The company indicated that the slowdown in credit growth in China and trends in budget spending norms would suggest a drop in copper prices.
Nevertheless, the hype among investors related to the development of AI infrastructure, investments in renewable energy, and long-term supply constraints has driven prices up.
According to BCA Research, inflows into exchange-traded funds backed by industrial metals reached an 18-year high in April, indicating strong demand from investors. The company also added that 'bullish' sentiment towards copper is at the 95th percentile of historical values.
Despite such high sentiment levels, BCA Research believes that the risk balance in the short term is still tilted towards the upside.
'In the coming weeks, renewed concerns about the US imposing tariffs on imported refined copper are likely to support prices,' said Ibrahim.
The company pointed to the widening premiums on COMEX, the rise in copper imports to the US, and the shift of stocks from overseas markets to the United States as evidence that traders are taking positions in anticipation of potential tariff measures.
Speaking of the longer-term outlook, BCA Research warned that the forecast is becoming more balanced. Uncertainty regarding US tariff policy and the ongoing crisis in the Hormuz Strait create 'significant two-sided risks' for copper prices in the second half of the year.
Ultimately, the metal will have to realign with the basic demand trends, notes BCA Research. This correction could happen due to increased Chinese infrastructure spending, but 'otherwise, copper prices risk pulling back within the cyclical horizon.'