Financial services company Macquarie Group expects the copper rally to slow down and likely face a “sharp correction” in the third quarter.

The red metal had recently hit the $10,000/tonne mark driven by investor sentiment and hopes of faster global growth. Yet, Macquarie analysts said in a note that the move appears overdone in the short term due to current fundamental indicators.

“Momentum also appears to have become self-reinforcing, leading to a significant implied build of systematic length alongside discretionary positions,” they add.

For example, Chinese demand has missed expectations, there are no clear signs of physical tightness in the global market outside of the US, and premiums are lacking as inventory is not following its normal seasonal destocking pattern.

As a result, the company forecasts copper prices to average $9,800/t in the third quarter to recover to a $10,500/t average in the fourth quarter. Prices are expected to remain above $9,000/t next year, before trending lower with the expected surplus in 2026, Kallanish learns.

From 2027, analysts estimate prices to assume a sharper upward trajectory, with the potential for tight balances to push copper back up to $11,500/t by 2028.

Meanwhile, they also note that the anticipated recovery in lithium prices has lost momentum sooner than expected. Insufficient supply exited at lower prices and building raw material inventories are weighing on the market, the analysts explain.

Chinese production of carbonate and hydroxide recovered in March and April but is estimated to have slowed down in May. Midstream production grew quickly in the first quarter but moderated in April. This results in lithium carbonate inventories reaching 92,000 t, which Macquarie says is their highest level since the data series began.

Spodumene spot prices peaked at $1,240/t in early May, up 46% from their January lows, but have since lost ground due to rising inventories. Macquarie expects lithium prices to recover in late 2024.