Copper is expected to weaken due to slow demand weakening fund rally.

 Copper prices are poised to sag in the coming months as physical demand has not kept up with the wave of hot money flowing into the market, a Reuters poll showed.

Benchmark copper prices were propelled by speculator and fund buying to above $10,000 a metric ton last week, hitting their highest in two years.

The metal used in power and construction has gained 17% so far this year despite signs of weak underlying demand in top metals consumer China and elsewhere.

“While we see more upside for copper in the long term, we believe that prices may have moved a bit too far, too fast,” said Carsten Menke, an analyst at Julius Baer in Zurich.

“The recent rally was triggered by signs of improving manufacturing activity in the Western world, which still needs to be manifested by increasing copper demand.”

The cash copper CMCU0 contract on the London Metal Exchange (LME) is expected to average $9,155 per metric ton in the second quarter of 2024, a median forecast of 22 analysts showed.

The forecast is 7.1% lower than the closing price on Friday of $9,853 a ton, though it was above the second-quarter forecast of $8,625 from the previous poll in January.

Analysts also adjusted forecasts to show still tighter supply after disruptions and lower production at major mines.

They now are forecasting a copper deficit of 125,000 tons this year, more than triple the deficit of 35,000 tons expected in the January poll and compared to a surplus of 302,500 tons expected late last year.

ALUMINIUM SURPLUS HALVED

Prices of aluminium have surged following new U.S. and UK sanctions earlier this month that banned exchanges from accepting new Russian production.

There have also been concerns about the pace of smelters in drought-hit Yunnan province restoring 500,000 metric tons of annual production.

“We expect some froth to come out of aluminium prices in the short term depending on the CTA flows,” said Srivathsan Manoharan at RBC Capital Markets in London.

Commodity Trade Advisor (CTA) investment funds are largely driven by computer programs.

“However, we expect prices to be supported in the second half, driven by rate cuts leading to a demand recovery and the potential end of a destocking cycle,” he added.

LME cash aluminium CMAL0 is expected to average $2,300 a ton in the second quarter, down 9.5% from the current price for the metal used in packaging, transport and construction.

Analysts have more than halved their consensus 2024 market surplus forecast to 135,000 tons from 300,000 tons in the previous poll.

NICKEL BOUNCES

Nickel was the worst-performing LME metal last year, sliding 45% largely due to sharp increases in production in Indonesia, but prices have rebounded to hit seven-month highs.

The gains were partly due to views that supply from Indonesia would be weaker than expected, and market talk of Chinese plans to buy the metal for state stockpiles.

The main use for nickel is in stainless steel, but its biggest growth area is for electric vehicle (EV) batteries.

“There is a high risk that, despite trending lower in 2024, prices will increase temporarily owing to supply-chain disruptions,” said Matthew Sherwood at the Economist Intelligence Unit.

Analysts expect LME cash nickel CMNI0 to average $17,293 a ton in the second quarter, down 8.7% from the current price.

They expect the global nickel market to show a surplus of 151,500 tons in 2024, down from oversupply of 240,500 tons that analysts forecast in January.

Source: Reuters (Reporting by Eric Onstad and Ashitha Shivaprasad; Editing by Jan Harvey)