Saxo bank says the worst of the correction is over

Copper prices on Tuesday rose to an almost six-week high, supported by fresh investor demand and market optimism over the potential for imminent U.S. interest rate cuts.

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

Three-month copper on the London Metal Exchange, meanwhile, also edged up to trade around $9,378 per metric ton.

Prices of the red metal have been climbing 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 copper’s recent rally had been bolstered in part by renewed demand from hedge funds which had previously cut their exposure to the base metal “during the recent and deep 24% correction.”

“We believe the worst of the correction is over, but before copper can mount a stronger recovery, demand fundamentals need to improve, potentially supported by restocking through lower funding costs once the [Federal Open Market Committee] starts its long-awaited rate-cutting cycle,” Hansen said in a research note published Friday.

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

Late last week, Federal Reserve Chairman Jerome Powell boosted already high expectations for a U.S. interest rate cut at the central bank’s Sept. 18 meeting.

Powell on Friday said that “the time has come for policy to adjust,” although declined to provide exact indications on the timing or extent of the cut.

Copper prices are seen as likely to benefit from U.S. interest rate cuts, with looser monetary policy expected to alleviate the financial strain on manufacturers and construction firms.

Demand for copper is widely considered a proxy for economic health. The red metal is critically important to various sectors including the energy transition ecosystem, and is integral to manufacturing electric vehicles, power grids and wind turbines.

Wall Street banks have been bullish on the outlook for copper prices this year, citing supply risks and improving demand for energy transition metals.

Indeed, analysts at Citi said in early April that the second secular bull market of copper this century was now underway — roughly 20 years after the first such cycle.

“From a technical standpoint, the rally has paused after meeting resistance at the early August highs at USD 4.22 per pound in New York and USD 9,320 per ton in London. A break would open up for an extension to USD 4.31…