Copper Prices Hit Record Highs: Morgan Stanley’s Bullish Outlook

Copper prices have experienced some volatility after reaching record highs recently, according to Morgan Stanley analysts. Despite this, the red metal is anticipated to continue its upward trajectory throughout the year.

Key Drivers of Copper’s Surge

The recent surge in copper prices to all-time highs has been driven by a combination of strong demand-supply fundamentals and significant speculative trading. Bulls are optimistic that copper demand will rise in the coming months, fueled by a global push towards green energy and electrification. They believe that copper mines will struggle to meet this increased demand, further supporting price gains.

Record Highs and Market Reaction

This optimistic outlook has been a major factor in copper’s recent gains and has also triggered a short squeeze on the Comex, amplifying the rally. On Monday, benchmark copper futures on the London Metal Exchange hit a record high of $11,101.50 per ton.

However, copper prices saw a sharp decline from these highs on Tuesday. Morgan Stanley analysts attribute this to expected near-term volatility following the sudden price spikes.

Future Outlook

Despite the recent pullback, Morgan Stanley remains bullish on copper for 2024. They predict further price increases, presenting a bull case of $13,125 per ton for LME copper and a base case of $10,500 per ton. The analysts highlight a tighter physical copper market than previously anticipated, driven by low U.S. inventory and disrupted shipping from China.

Factors Supporting Copper Demand

Several factors are expected to drive copper demand:

• Artificial Intelligence and Data Centers: The growing popularity of AI and the significant energy requirements of data centers are anticipated to boost copper demand due to its crucial role in electricity transmission infrastructure.
• Global Economic Trends: China, the world’s largest copper importer, is projected to see an economic rebound in 2024, supported by sustained stimulus measures from Beijing. This is expected to increase the country’s copper appetite, although ongoing weakness in the property market might limit demand.

Morgan Stanley’s Bullish Perspective

“We remain bullish on copper as persistent supply challenges widen our deficit for 2024,which looks set to persist into 2025. Demand and narrative tailwinds from data centres/AI should also boost participation, with long positioning rising,” wrote Morgan Stanley analysts in a note.

In summary, despite near-term volatility, the outlook for copper remains strong, supported by robust demand and supply fundamentals, advancements in technology, and global economic trends.