Citigroup: Copper prices may consolidate in the short term, but the long-term bullish trend remains unchanged, with a rebound to $12,000 in the next year

Since hitting a historical high in mid-May, London copper and New York copper futures prices have both fallen by around 10% cumulatively. Has this round of copper bull market come to an end?

Citigroup, as one of the earliest brokers to predict the arrival of the "copper bull", disagrees.

On Wednesday local time, analysts at Citibank, including Shreyas Madabushi, released a report stating that they are optimistic about the overall outlook for the copper market, believing that although copper prices may consolidate in the short term, the long-term bullish trend remains clear.

Citigroup pointed out that with the backdrop of a weakening manufacturing industry outlook, copper prices are expected to consolidate around current levels in the short term. However, as the Fed begins its rate cut cycle and the full impact of China's supportive policies is unleashed, copper prices may rebound to $12,000 per ton in the next 12-18 months, representing a 20% increase from current levels.

Citigroup believes that copper prices below $9,500 per ton are attractive buying levels in the medium term.

Copper end-consumer resilience remains, long-term positive trend unchanged

Citigroup believes that although global manufacturing PMI re-entered the contraction zone in May, this has limited impact on the long-term consumption trend of copper.

Citigroup analyzed global copper consumption data for the first 4 months of 2024. Despite the rise in global copper inventories suggesting a slowdown in demand, end-consumer demand remains resilient.

The report shows that from January to April, global copper consumption grew by about 4% year-on-year, mainly supported by decarbonization-related demand.

Specifically, according to Citigroup's Global Copper End-consumer Demand Index (GCET), global copper consumption (excluding renewable energy) in April grew by 5.5% year-on-year, mainly driven by the growth in end-consumer demand in China.

In China, industries such as automobiles and home appliances have shown impressive copper consumption, especially the former.

According to data from the China Passenger Car Association, in April, China's new energy vehicle market retail sales reached 674,000 units, a year-on-year increase of 28.3%, with a domestic retail penetration rate of 43.7%. In April, exports reached 115,000 units, up 26.8% year-on-year.

Based on April data, Citigroup estimates that global copper consumption is growing at an annualized rate of approximately 30 million tons.

Expected copper price consolidation in the short term, $9,500 is a good buying opportunity

While optimistic about the long-term prospects of copper, Citigroup expects copper prices to consolidate in the short term. There are three main reasons for this: First, recent US economic data has weakened, with April PCE inflation and May manufacturing PMI both falling short of expectations, indicating that the US economy is slowing down in a high interest rate environment. Combined with weak PMI performance in other regions, this may limit the upside potential of copper prices in the short term.

Second, signals in the spot market are weak, with narrowing contango and high inventory levels, reflecting destocking in the supply chain after copper prices surged to historic highs. Citigroup expects this weak spot market pattern to be difficult to reverse in the short term, with insufficient momentum for copper prices to resume their upward trend.

Third, copper inventories on the Shanghai Futures Exchange have surged significantly, reaching a historic high at the end of May. The slow destocking of inventories in the short term will also exert pressure on copper prices.

Taking the above factors into consideration, Citigroup believes that there is a high possibility of copper prices undergoing short-term consolidation and volatility. However, Citigroup emphasizes that in a scenario of improving demand outlook, a pullback in copper prices could present a good opportunity for bullish investors and consumers, with the institution providing a mid-term buying range below $9,500 per ton.

Expectations of Fed rate cuts rising, Chinese demand yet to be unleashed, copper prices may rebound to $12,000

Despite the current cooling down of the copper market sentiment, Citigroup states that in the medium to long term, under the positive influence of the Fed rate cut cycle and supportive policies in China, along with factors such as the "dual carbon" goal and the transition to new energy, copper demand is expected to continue growing, providing strong support for copper prices.

Firstly, Citigroup economists predict that due to factors such as economic slowdown and declining inflation, the Fed may start its rate cut cycle as early as July, earlier than the market's general expectation of September.

Citigroup's view is that the Fed will cut rates by 25 basis points in July for the first time, followed by a total cut of 200 basis points in the first half of 2025. The initiation of the Fed rate cut cycle will provide certain support for copper prices.

Secondly, the impact of China's supportive policies is yet to be fully unleashed. A series of policies aimed at boosting consumption and stabilizing the real estate market have been introduced recently, which are expected to create conditions for economic stabilization and recovery in the second half of the year.

Based on these two major factors, Citigroup predicts that copper prices may rebound to $12,000 per ton in the next 12-18 months, representing a 20% increase from current levels.

Citigroup is not the only institution bullish on copper prices. "Commodity Flagship" Goldman Sachs also stated in a previous report that they expect copper prices to rise to $12,000 per ton by the end of the year.

Supply shortage, global copper mine battle is underway!

On the supply side, Citigroup points out that although the improvement in scrap copper supply provides some support for refined copper production, overall, with new production capacity being slowly released, copper mine supply will continue to remain tight Wall Street News previously reported that the supply of copper mines has become so tight that global commodity giants are fighting for it. Major commodity giants such as Glencore, Trafigura, and Mercuria are currently fiercely competing for long-term orders for copper mines, even willing to pay up to $1 billion in advance to secure future copper supply.

Citigroup stated that if the spot price of copper cannot rise to $12,000 per ton and the supply cannot meet the strong demand growth in the market, by the end of the year, people may more clearly feel the shortage of physical copper.

Moreover, this shortage situation may worsen by 2025, with annual supply shortages deteriorating