Copper Prices Reach Record Highs: Insights from Morgan Stanley’s Bull Case

Copper prices are anticipated to experience some near-term volatility following recent record highs, according to analysts from Morgan Stanley. Despite this fluctuation, the red metal is expected to trend upward throughout the year.

Recent gains in copper prices were fueled by a combination of strong demand-supply dynamics and significant speculative trading activity, leading to prices reaching unprecedented levels. Optimism among market participants is centered on an expected increase in copper demand due to a global shift toward green energy and electrification, with concerns that copper mines might not be able to meet this rising demand.

This prevailing sentiment has contributed to the surge in copper prices, and a short squeeze on the Comex further amplified the rally, with prices on the London Metal Exchange peaking at $11,101.50 per ton recently. However, prices experienced a sharp decline after these peaks, leading Morgan Stanley analysts to suggest that copper will face some instability in the short term.

Looking ahead to 2024, analysts maintain a bullish outlook for copper, projecting a target price of $13,125 per ton under an optimistic scenario and a base case of $10,500 per ton. They noted that the physical copper market is likely tighter than previously expected, particularly due to low inventories in the U.S. and delayed shipments from China.

The rising use of artificial intelligence, which requires significant energy resources, is also projected to drive further demand for copper, given its critical role in electricity transmission infrastructure. Analysts expressed confidence in the copper market, citing persistent supply challenges likely to create a deficit through 2024 and into 2025. They also highlighted potential growth fueled by the data center and AI industries, which could lead to increased long positioning in the market.

As the world’s largest copper importer, China is poised for an economic rebound in 2024, supported by ongoing stimulus measures from the government. However, the strength of this demand may be tempered by a sluggish property market.