Copper rallies to a near four-month high – A breakout or fakeout?

Copper is running hot in 2025 – prices are on a five-day winning streak, up 6.0% to US$4.27/lb and not far off a fresh four month high.

The recent strength defies a number of headwinds including soaring bond yields, a rising US dollar, poor Chinese economic data and persistent weakness in other key commodities such as iron ore.

Copper's chart is starting to draw some interest as several signs of strength start to emerge, including:

• Prices have managed to defend the key US$4.00/lb level

• Prices have rallied through the 20-day and 50-day moving averages

• Prices have pushed above the downward trendline

Copper price chart (Source: TradingView)

While the chart is encouraging, more data and signals are needed to confirm this strength. The current breakout could still reserve and snap back below key moving averages and the trendline.

Prices To Rise – But When?

Copper has been one of those commodities where the vast consensus is that prices will head higher for a number of well-documented reasons.

Global demand is forecast to rise approximately 3% per annum over 2025-26, according to the Office of the Chief Economist at the Department of Industry, Science and Resources. They expect copper prices to average US$9,477 a tonne (US$4.3/lb) in 2025 and rise further to US$9,690 (US$4.39/lb) by 2026. As the Australian Government's commodity forecaster, their price forecasts tend to be conservative.

The anticipated demand growth, even amid broader economic headwinds, stems from structural shifts including EV manufacturing, AI-related data centres and renewable energy infrastructure.

Yet despite these persistent bullish drivers, copper prices have remained largely range-bound since April 2021.

Copper price chart (Source: TradingView)

What's in Store for 2025?

By all means, this year could be no different. Copper has demonstrated the tendency for short-term rallies and getting investors excited as it approaches US$5/lb before snapping back towards US$4/lb.

Long-term fundamentals still point higher, with multiple tailwinds including declining ore grades, regulatory complexity, weather events and social unrest. However, in the near term, volatility remains the only certainty – and 2025 presents numerous catalysts that could drive significant price swings.

Strong US dollar weighs on copper. The US dollar index has rallied 8.5% since late September to levels not seen since November 2022. A strong US dollar makes commodities more expensive for foreign buyers, leading to lower global demand and weaker prices. Most commodity prices tend to move in the opposite direction as the US dollar.

Source: ING Research

China stimulus misses the mark. Last November, China announced further policy adjustments, including 6 trillion yuan in debt relief for local governments (which missed market expectations of 10 trillion yuan). The lacklustre stimulus announcement sent copper prices down around 8% between 7-13 November.

China's property sector is still in shambles. China has been a major drag on metals demand for over three years amid a broad economic slowdown and property sector crisis. But the downward spiral is far from stabilising. Despite the underlying weakness, ING Economics see a reason why copper may hold up better than other base metals.

"However, as China’s recent stimulus has focused on clearing property inventories rather than boosting new starts, copper and aluminium are likely to have an advantage over iron ore. Both metals are heavily used in the completion stage when copper wirings and aluminium framings are added," says ING Bank's London-based Commodities Strategist Ewa Manthey.

Source: ING Research

Trump uncertainty. "We believe the bulk of Trump’s proposed policies will be negative for global metals demand, including copper," says Manthey. Several of his policies including tax cuts, tariffs and deregulation are viewed as inflationary and may hinder the Fed's rate cut outlook.

Global copper stocks surged in 2024. Copper stockpiles soared to levels not seen since 2018 amid soft demand from China and elsewhere. This trend was largely underpinned by a surge in Chinese exports as smelters expand production while demand from industrial sectors lag.

Source: Department of Industry, Science and Resources

Copper surplus to persist in 2025. ING Economics forecasts a 200,000 tonne surplus this year on sluggish demand and higher global copper mine production.

Source: ING Research

While current data and forecasts suggest downward pressure on copper prices, several upside catalysts could shift the narrative: More aggressive Chinese stimulus measures, weather-related supply disruptions, or larger-than-anticipated central bank rate cuts.

Stocks Remain Bearish

Copper prices are approaching four-month highs, yet copper mining stocks seem skeptical of this rally. Pure-play producers like Sandfire Resources (ASX: SFR) and Capstone Copper (ASX: CSC) remain down 10-12% from their mid-November levels, suggesting that broader equity market weakness and uncertainty about copper's trajectory are overshadowing the metal's price gains.