Copper Price Faces Grave Threat! Analyst: After Creating Historic Single-Day Plunge, It May Continue to Fall
Copper price has just experienced its worst day in history. But with the US economy soft and major commodities' historical price trends, it means copper price may still have room for further declines.
We learned from our sources at that on Wednesday, the Trump administration announced a long-anticipated copper-related tariff. Although this round of tariffs didn't cover as much as the market had feared, it only covered semi-finished products like copper plates and wires, excluding raw materials and scrap copper, which still triggered massive sell-offs from investors. Many investors had previously stockpiled copper in the US to avoid potential tax risks before the tariff took effect.
According to Dow Jones market data, COMEX near-month copper futures prices plummeted 22% on Wednesday, dropping by $1.24 per pound to $4.33 per pound, setting a record for the largest single-day drop since 1968.
Copper mining company stocks also suffered significant losses. Last week, Southern Copper (SCCO.US) stock price fell nearly 7%, while Freeport-McMoRan (FCX.US) dropped by 11%.
Although the market has seen a sharp correction, some analysts believe that this decline also has a "rational rebalancing" aspect. Due to the escalating trade tensions, copper traders have been buying up US local copper resources en masse, causing prices to rise by around 40% since January. Prior to the tariff announcement, COMEX near-month copper futures prices were trading at a premium of nearly 30% compared to London Metal Exchange (LME) contracts. However, after the "below-expected" tariffs took effect, this premium rapidly disappeared, with the two price gaps narrowing to around 1% by Friday.
Britannia Global Markets' metal head Neil Welsh said, "This shift may inject a degree of certainty back into the copper market, allowing it to focus on fundamental factors rather than short-term trading behaviors driven by news headlines."
However, even if the market returns to its fundamentals, the basic situation for copper looks precarious. Although copper prices have recently been boosted by growing electricity demand, copper remains one of the most economically sensitive commodities, with its price trends closely linked to US and Chinese economic growth prospects.
Earlier this week, the Federal Reserve chose not to adjust interest rates. However, after Friday's employment data came in far below expectations, market expectations for a September rate cut surged.
From a historical price trend perspective, copper's current surge also raises concerns. Senior commodities strategist Mike McGlone at Bloomberg notes that US copper prices have been behaving similarly to oil prices before the 2008 financial crisis. At the time, oil prices rapidly rose to a historic high of $147 per barrel due to economic misalignment, only to plunge to $32 after the housing bubble burst. Oil prices are still lingering around $68, just half of their peak.
According to this analogy, copper prices may also experience a sharp correction from their July 23 high of $5.80 per pound and plummet to around $3 per pound if they follow the "high-low-high" pattern seen in oil prices during the crisis.
"It's a very common phenomenon for commodities to experience a sharp correction after reaching their high points," McGlone said. "Why can't copper go back down to $3? For nearly two decades, this metal's price has mostly oscillated around $3."