Copper price forecast: heading to a 10% dip if this happens

Copper price continued its freefall as concerns about the global economy continued. It slipped to a low of $3.58, the lowest level since May 26th. It has fallen by more than 11.3% from its lowest point in August and by 18% below the year-to-date high.

Copper, often seen as a barometer of the global economy, has been in a strong downward trend as risks rise. The biggest concern for copper is China, its biggest market, is slowing down dramatically.

Data published this week showed that China’s manufacturing sector is not growing as fast as it did before. The Caixin manufacturing PMI dropped to 50.6 in September from 51.0 in the previous month. 

Further, the real estate market is going through major structural challenges. For one, major giants like Country Garden and Evergrande are on on the verge of collapse. The two firms had almost $500 billion in total liability.

Many of their projects have stalled, starving most local governments in the country. Most importantly, Beijing is not implementing the big infrastructural projects that it used to do a few years ago.

The rest of the world is not doing well either. Some key countries like Germany and France are barely growing. At the same time, the United States is at a major risk as the public debt surges. It has risen to more than $33.4 trillion and analysts see it moving to $35 trillion in 2024. 

The yield curve inversion is continuing while the bond sell-off is set to gain steam. Therefore, there are risks that the economy could move to a recession, as I warned here.

On a positive sign for copper, demand is not growing as fast. Therefore, analysts believe that the industry will move to a supply deficit in the coming years. Annual demand is expected to come in at 36.6 million tons by 2031 with supply set to come in at 30.1 million.

Copper chart by TradingView

The daily chart shows that the copper price has been in a strong bearish trend in the past few days. It slipped to a low of $3.5576 on Thursday, the lowest swing on May 25th. The price has moved below the 25-day and 50-day moving averages. 

Most importantly, the metal has formed a head and shoulders pattern whose neckline was at $3.6610. In technical analysis, this is one of the most accurate bearish patterns in the market. Copper’s Relative Strength Index (RSI) is also nearing the oversold level.

Therefore, copper will likely continue falling if bears manage to move below the current support at $3.5500. If this happens, the next level to watch will be at $3.2440 (September 28, 2022 low). This price is almost 10% below the current level.

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