Copper's Record Rally Unravels

A nearly 9% drop in copper prices over the last two trading sessions marks a sharp return to reality for a market that analysts say had surged far ahead of its underlying fundamentals.

The recent rally, which pushed copper to a record high of $14,527.50 per metric ton last Thursday, appears unsustainable when measured against weak demand, rising stockpiles, and the prospect of increased supply.

Fundamentals Clash With Speculative Highs

Analysts argue that the recent price action was driven more by speculative momentum than by market realities. "Prices had moved way beyond fundamentals, pushed up by investors crowding into the market," said Macquarie analyst Alice Fox, who noted the global market was in a surplus of around 600,000 tons last year.

According to Fox, copper prices remain too high and would need to fall below $11,000 a ton to accurately reflect the current supply-and-demand balance. Even at last week's peak, prices were well above the levels considered necessary to incentivize new production investments.

The correction began swiftly. On Monday, copper hit a three-week low of $12,414.50, tumbling 9% from its recent peak. The slide was partly triggered by a stronger U.S. dollar, which gained after President Donald Trump appointed Kevin Warsh as the next Federal Reserve chair.

Macro Pressures and Waning Demand

The broader economic picture also fails to support the case for bullish copper prices. Tariffs and trade tensions under the Trump administration have pressured global manufacturing activity over the past year. While factory output in some regions expanded in January, the growth came from a low base after months of contraction, offering only tentative reassurance.

Further weighing on demand is China's upcoming Lunar New Year holiday in mid-February. The event will bring industrial activity to a standstill in the country, which consumes over half of the world's copper, estimated at 26 million tons this year.

Rising Supply and Swelling Inventories

While much of last year's price gains were fueled by supply disruptions from accidents in Indonesia and Chile, the supply landscape is changing. Production ramp-ups at mines in Zambia and Mongolia are expected to bring more copper to the market this year.

This outlook is echoed by StoneX analyst Natalie Scott-Gray. "While we forecast copper in a deeper deficit market year on year, we still do not see the market as historically out of balance," she said. Scott-Gray added that while supply risks exist, "fundamentals certainly do not support copper at current levels."

The most telling sign of weak demand is the dramatic increase in stockpiles. Inventories in warehouses registered with the London Metal Exchange (LME), Shanghai Futures Exchange (SHFE), and Comex have more than doubled since August, now totaling over 930,000 tons. This glut of metal suggests that consumption is not keeping pace with availability, signaling the potential for further price declines.