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Climbing inventories because of slowing demand and mounting mine supply are set to hit copper prices over coming months, with the move exaggerated by speculators cutting bets on higher prices of the metal used in power and construction.

Demand optimism kindled by top consumer China easing some COVID restrictions has faded as cases have risen and new curbs have been imposed, which will further undermine industrial activity.

A lower U.S. currency, which makes dollar-priced metals cheaper for holders of other currencies, provided a boost, but that trend too seems to have stalled because of hawkish comments on U.S. interest rates from Federal Reserve officials.

Benchmark copper on the London Metal Exchange rose 20 per cent between Sept. 28 and Nov. 14 to US$8,600 a tonne, but has since retreated.

Further pressure on copper prices will come from a jump in mined production – about 8 per cent to around 24 million tonnes next year, compared with a rise of only 1.8 per cent this year, according to Macquarie analysts.

That will be compounded by a further slowdown in industrial activity, as highlighted in surveys of purchasing managers in China’s manufacturing sector showing contraction.

“There’s a major disconnect between the demand outlook and speculative positioning,” Citi analyst Max Layton said.

Citi expects a copper market deficit of 142,000 tonnes this year and a 199,000-tonne surplus in 2023.

“Inventories will rise because of the seasonal surplus we usually get between December and March. Copper prices will fall over the next couple of months,” Mr. Layton said.

Already, copper stocks in London Metal Exchange registered warehouses are rising and, at 91,250 tonnes, are up 17 per cent since hitting nine-month lows earlier this month.

Not all the excess copper will find its way to exchange warehouses. Some of it may be stored by producers, consumers and commodity traders off-exchange, and while these stocks may be invisible, they will be reflected in physical market premiums, which are already sliding.

The widely watched Yangshan premium for copper in China at US$90.50 a tonne has dropped more than 40 per cent over the past four weeks to levels last seen at the end of September.

“The degree to which China’s economy will recover following some very significant stimulus measures will be key,” CRU analyst Panos Kotseras said. “CRU is expecting surpluses in 2023-2024, copper prices are going to come under pressure.”

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