• Prices of the red metal have risen steadily in recent weeks, paring losses after falling to a four-month low in early August.
• Ole Hansen of Saxo Bank said the recent rise in copper prices had been supported by renewed demand from hedge funds, which had previously reduced their exposure “during the recent and sharp correction of 24 percent”.
• “We believe the worst of the correction is over,” Hansen said.

Copper prices rose to a nearly six-week high on Tuesday, supported by renewed investor demand and market optimism about possible upcoming interest rate cuts in the US.

Copper for September delivery traded at around $4.223 a pound in New York, extending gains after hitting its highest since July 22 in the previous session.

Meanwhile, the price of three-month copper on the London Metal Exchange also rose slightly, trading at around USD 9,378 per tonne.

Prices of the red metal have risen steadily in recent weeks, paring losses after falling to a four-month low in early August.

Ole Hansen, head of commodity strategy at Saxo Bank, said the recent rise in copper prices had been partly supported by renewed demand from hedge funds, which had previously reduced their exposure to the base metal “during the recent and sharp correction of 24 percent”.

“We believe the worst of the correction is over, but before copper can stage a stronger recovery, demand fundamentals must improve, potentially helped by inventory replenishment on lower financing costs once the Federal Open Market Committee begins its long-awaited rate-cutting cycle,” Hansen said in a research note released Friday.

“Until then, traders will continue to look for signs of improvement, not least through the reduction of elevated inventories in the warehouses monitored by the three major futures exchanges,” he added.

Optimism regarding interest rate cuts

Late last week, Federal Reserve Chairman Jerome Powell further fueled already high expectations for an interest rate cut in the US at the central bank’s meeting on September 18.

Powell said on Friday that “the time has come to adjust policy,” but declined to provide details on the timing or extent of the cuts.

Copper prices are likely to benefit from interest rate cuts in the US, as looser monetary policy is likely to ease financial pressure on manufacturing and construction companies.

Copper demand is widely seen as an indicator of economic health. The red metal is crucial to several sectors, including the energy transition ecosystem, and is used in the manufacture of electric vehicles, power grids and wind turbines.

Wall Street banks are optimistic about the copper price outlook this year, pointing to supply risks and rising demand for energy transition metals.

In fact, analysts at Citi said in early April that the second secular bull market for copper this century is currently underway – some 20 years after the first such cycle.

“From a technical perspective, the rally has paused after encountering resistance at early August highs of $4.22 per pound in New York and $9,320 per tonne in London. A break would allow an extension to $4.31 and $9,500 respectively,” said Saxo Bank’s Hansen.