Copper recently reversed sharp price falls seen earlier this year, but fresh headwinds could push the metal lower in the second half, Capital Economics said in a note.
"We expect renewed weakness in the copper price later this year as mine supply picks up and Chinese copper imports continue to fall due to waning demand from financing deals," said Caroline Bain, senior commodities economist at Capital Economics.
A bumpy ride
It's been a rollercoaster year for copper. The red metal – which is used in everything from cars to houses – tumbled to a four-year low of $6,440/ton earlier this year as worries over a crackdown on the use of copper as collateral for financing deals in China – copper's largest market – prompted fears a supply influx could flood the market, pushing prices lower.
However, concerns began fading in recent months, and prices rebounded accordingly, aided by a weaker dollar. Signs of stabilization in the Chinese economy, lower global copper inventories and slower growth in mine supply have been supportive as well.
However, some analysts warned investors not to get too excited by the rally, which has brought copper prices back up to $7,132/ton in recent days, as further gloom is in store.
A number of factors are set to knock copper lower including a pick-up in mine supply, helped by two new mines that became operational in Chile in June, Bain said. Additionally, Indonesia-based copper miner Freeport McMoRan just announced a preliminary agreement with the government suggesting exports could resume soon, following a disagreement over a hike in ore export taxes earlier this year.
Meanwhile, on the demand side, Capital Economics expects concerns over the use of commodity-backed loans in China to resurface, weakening prices once more.