Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Copper Is Plunging While the Green Energy Boom Continues
Transcript
- Lucas: Copper is supposed to be the poster child for green energy demand. Electric vehicles, solar farms, wind turbines — they all need massive amounts of the red metal. And yet, copper futures have dropped 4 percent in the last five days, trading around six twenty-six a pound. Luna: It's been a rough week across commodities, but copper's decline stands out because the long-term narrative is so bullish. What's driving the selloff right now? Lucas: Right, and that's the key tension. The long-term story is real — global copper demand is expected to double by 2035. But the market isn't trading 2035 right now. It's trading June 2026. And what's happening right now is a classic case of near-term headwinds overwhelming structural optimism. Luna: So what are those headwinds? Let's start with the biggest one. Lucas: China. China accounts for about half of global copper consumption. And its property sector, which used to be a huge driver of copper demand for wiring and plumbing, is still in the doldrums. New home starts are down year-over-year, and the government hasn't unleashed the kind of stimulus that would meaningfully boost construction. So that big chunk of demand is just not there. Luna: And on the supply side, we're seeing new mines come online, right? That has to be putting pressure on prices. Lucas: Exactly. Peru and the Democratic Republic of Congo have been ramping up production. Some major projects that were delayed during COVID are finally hitting their stride. Global mine production is expected to grow by about 3 percent this year. So you have softer demand from China's property sector and growing supply — that's a recipe for lower prices in the near term. Luna: And it's not just physical supply and demand. There's also the futures curve. What's the structure telling us? Lucas: Copper is in contango right now — meaning futures prices for delivery further out are higher than for near-term delivery. That signals that the market is well-supplied in the near term. Traders aren't worried about an immediate shortage. In fact, warehouse stockpiles tracked by the London Metal Exchange have been building over the past few months. That reinforces the contango. Luna: So institutional traders — hedge funds, commodity trading advisors — they see that contango and they pile on the short side, accelerating the move lower. Lucas: Precisely. A lot of these funds are trend-followers. Once copper broke below key technical levels, the selling snowballed. And because copper is a relatively liquid commodity, it's also used as a macro hedge. When risk appetite falls — like we saw this week with the Nasdaq dropping sharply, Bitcoin sinking below sixty thousand — traders sell copper as part of a broader de-risking move. Luna: It's interesting that this selloff is happening even as the green energy transition continues. Governments are still pouring money into renewables, EV sales are growing globally. But the market seems to be saying: that demand is further out than the immediate oversupply. Lucas: And that's the nuance that often gets lost in the headlines. The green energy narrative for copper is absolutely valid over a five to ten year horizon. But commodity markets are notoriously myopic. They care about what's happening in the next few quarters, not what might happen in a decade. And right now, the next few quarters look soft. Luna: So for someone listening who's wondering whether to buy copper stocks or ETFs at these levels — what's the framework? Do you wait for a clearer catalyst? Lucas: The classic framework for commodity investing is to look at the cost curve. The marginal cost of production for most copper mines is somewhere between two fifty and three dollars a pound. At six twenty-six, we're well above that, so we aren't at a point where mines are shutting down. But if prices keep falling, you could see supply cuts announced, which would be a floor. The other catalyst would be a meaningful stimulus from China — something that directly targets infrastructure or property. Luna: Or a major supply disruption. A strike at a big mine in Chile or Peru could flip the narrative overnight. Lucas: Absolutely. Copper is always one geopolitical event away from a spike. But as of now, there's no imminent disruption. The market is just grinding lower on fundamentals. And by the way, this dynamic — long-term bullish story colliding with near-term bearish reality — is something we see across a lot of commodities right now. Luna: Speaking of which, before we wrap up — and this is a genuine thought — episodes like this, where we drill into a specific commodity's price action and the forces behind it, are the kind of content we love making. And the reason we can keep doing it ad-free, with no sponsors, no annoying commercials, is that a small group of listeners supports us through buy me a coffee dot com slash fexingo. Lucas: Yeah, it's really straightforward. If you get value from breaking down these markets with us, buying us a coffee helps cover the production costs and keeps the whole thing independent. No pressure, no upsells — just a simple way to chip in if it's made a difference in how you think about commodities. Luna: Right. And it's genuinely what funds this many episodes. So thank you to those who already do. Now, back to copper — we talked about China and supply, but there's another factor that's been weighing on the metal specifically: the strength of the US dollar. Lucas: Good point. Copper, like most commodities, is priced in dollars. And the dollar has been firm this week — the DXY index is holding above 104. A stronger dollar makes dollar-denominated commodities more expensive for foreign buyers, which can dampen demand. That's an additional headwind. Luna: And we're also seeing the 10-year breakeven inflation rate tick down slightly — it's at 2.36 percent, down from 2.38 last week. That suggests inflation expectations are moderating, which reduces the appeal of commodities as an inflation hedge. Lucas: Right. So you have multiple forces aligning against copper in the short term: weak Chinese property demand, rising supply, a contango futures curve, systematic selling from hedge funds, a firm dollar, and easing inflation expectations. The only thing missing from that list is a demand catalyst, and it's not on the horizon yet. Luna: Do you see any scenario where copper reverses sharply in the next few months? Lucas: A sharp reversal would probably require a supply shock — something like a major mine outage or an export restriction from a key producer. Short of that, the most likely path is a slow grind lower until prices reach a level where marginal producers start cutting output. That could be around five dollars or so, but it's hard to say. Alternatively, if China announces a big infrastructure package, that could be a catalyst. But I wouldn't bet on that happening before the second half of the year. Luna: So for investors, patience might be the play. Let the contango work off, watch for supply cuts, and wait for a clearer entry point. Lucas: Exactly. And that's the value of understanding the commodity cycle. Copper isn't broken — it's just in a down phase of the short-term cycle. The long-term thesis is intact, but timing matters. And right now, the market is telling us to wait. Luna: Alright, that's a good place to leave it. Next episode, we'll look at another commodity that's defying the broader selloff. Lucas: Thanks for listening.