The specter of the Federal Reserve maintaining a hawkish stance and a persistently strong US dollar continues to weigh on copper prices. After declining for two consecutive weeks, London copper futures briefly dipped towards $13,300 per tonne on Monday, though they later recovered slightly to trade around $13,400, up 0.43% at the time of writing. Following a record-high closing price last month, copper is on track for a monthly loss exceeding 2% in June.
Federal Reserve policymakers have recently signaled increasing support for potential interest rate hikes in the coming months to combat stubborn US inflation. This stance typically bolsters the US dollar, which in turn pressures commodity prices, including copper. The US dollar index climbed to its highest level since last November earlier in the week. Some traders suggest that robust US economic data will likely sustain the dollar's strength, continuing to suppress base metal prices.
Data released last Thursday showed the Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, rose 4.1% year-on-year in May, marking the largest increase since April 2023. While conflict in the Middle East has pushed up oil and other commodity prices, inflationary pressures have become more broad-based.
Richmond Fed President Thomas Barkin commented over the weekend, "The May PCE data was just too high." He added, "Without continued action from the federal funds rate, the labor market, or other factors that could help bring inflation down, it's hard to be confident that inflation will return to the 2% target."
Minneapolis Fed President Neel Kashkari stated last Friday that, due to persistent signs of widespread inflation, he had factored in one rate cut this year in the economic projections released earlier this month. "I'm concerned about inflation, and it's not just about the Middle East; it's more about the broader inflationary pressures building across the economy," Kashkari said.
Chicago Fed President Austan Goolsbee also noted that overall US inflation remains too high, particularly concerning core inflation trends. He indicated the Fed needs to see more signs of improvement before gaining greater confidence in the inflation outlook.
However, Goldman Sachs posits that Middle East conflicts could ultimately benefit metal demand. Analysts, including Samantha Dart, suggested in a report that increased reliance on electric vehicles, greater investment in renewable energy, expanded defense spending, and escalating competition in the AI race will all serve as key themes supporting copper demand.
Goldman Sachs recently raised its copper price forecast for the end of 2026 to $13,735 per tonne and its average price forecast for 2027 to $13,800 per tonne. In contrast, Citigroup holds a more aggressive view. The bank raised its short-term copper price forecast from $13,000 to $14,500 per tonne, with a 6-12 month target price of $15,000.
Potential trade policies under a future Trump administration could also impact copper prices. Markets anticipate the possibility of tariffs on imports of refined metals. If such expected tariffs are not implemented, it could become a negative factor for copper. The US Department of Commerce must submit a recommendation to the President by June 30th on whether to impose a 15% tariff on refined copper starting next year.
Goldman Sachs' base-case scenario assumes the US will again postpone any tariffs on refined copper, but the mere expectation that "tariffs could come at any time" is sufficient to drive sustained inventory building behavior.
Long-Term Bullish Fundamentals Remain Intact
From a medium- to long-term perspective, copper prices are still expected to find support. On the demand side, copper is extensively used in electric vehicle batteries, data centers, and numerous other sectors. Amid the global surge in AI computing infrastructure development, data centers are becoming veritable "new copper mines." This traditional industrial metal, with its irreplaceable conductive and thermal properties, is a core material underpinning the growth of the AI industry.
A Morgan Stanley report predicts global copper consumption by data centers will rise to 740,000 tonnes in 2026, contributing 0.6 percentage points to global copper demand growth. By 2027, data center copper consumption is expected to reach 1 million tonnes (2.8% of total demand), further increasing to 1.3 million tonnes (3.3%) in 2028, representing a compound annual growth rate of 40%.
Jefferies estimated in a previous report that global total copper demand will reach 30.93 million tonnes by 2030, with a compound annual growth rate of 2.1% from 2025 to 2030. Within this, electric vehicles lead with a growth rate of 9.6%, while data centers and renewable energy (wind + solar, excluding grid) are projected to grow at 6.1% and 6.7%, respectively.
The supply side is struggling to keep pace. Global copper supply in 2030 is forecast at only 30.09 million tonnes, implying a deficit of approximately 840,000 tonnes. Based on this projected shortfall, Jefferies establishes a long-term price benchmark of $6.50 per pound, equivalent to $14,330 per tonne, by 2030.
Jefferies stated plainly, "Even in a world with only 2% global GDP growth, the copper market will face a significant supply-demand deficit over the next 12 months and beyond." This indicates that the core driver of this copper price cycle is not short-term euphoria fueled by macro sentiment, but a tangible, physical shortage on the supply side.
The copper market may be moving away from its historical cycle of "three years up, two years down" and is more likely entering a period of structural supply-demand mismatch that could persist for several years.
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