Investing.com — Prices have recently surpassed copper, but Morgan Stanley analysts are predicting a possible shift in favor of .
While aluminum prices have risen 11%, driven by a combination of rising input costs, strong demand from key sectors in China and temporary supply disruptions, Morgan Stanley believes copper is better positioned to benefit from improving market conditions and fundamentals factors.
The recent price increase for aluminum is mainly due to the significant increase in the cost of alumina. Alumina (OTC:), a key ingredient in aluminum production, has seen prices rise to almost $520 per tonne.
This increase is passed on to consumers in the form of higher aluminum prices. Moreover, strong demand for aluminum in China, especially from sectors such as solar energy, grid infrastructure and electric vehicles, has further boosted the metal’s performance.
For example, network spending in China has increased 19% this year, which has contributed to rising demand for aluminum.
“Long queues to collect metal at the key warehouse in Port Klang have put pressure on a number of short-term contracts, which may prove to be temporary. In contrast, copper is under pressure due to increasing concerns about global growth and the disappearance of overextended positioning,” the analysts said.
Although aluminum prices have been high, concerns are growing about the sustainability of this trend. Global aluminum production is now at a record high, with China returning to its role as a net exporter since May 2024.
As supply continues to increase and demand growth potentially stabilizes, the momentum behind aluminum’s rise may begin to wane.
Copper, on the other hand, was under pressure during the same period. Prices have struggled amid concerns about global growth and the disappearance of previously overextended market positions.
However, this underperformance can quickly change. Analysts at Morgan Stanley see several encouraging signs that copper is on the way to recovery.
Copper demand indicators in China are showing signs of improvement. The copper premium in Yangshan, which reflects the strength of spot market demand, has recovered, indicating that physical demand for copper is increasing.
In addition, inventories in China are beginning to decline, a development that reflects higher utilization rates at wire mills and a slowdown in refined copper supply growth.
These trends indicate that copper fundamentals are strengthening, paving the way for a potential price increase.
In addition, the market positioning in copper has become significantly cleaner. The sharp correction in copper prices has brought net positioning closer to normal levels, reducing the risk of further liquidation.
This creates a more supportive environment for new investment flows into the market, which could drive prices higher in the coming months.
Morgan Stanley remains bullish on both aluminum and copper for the fourth quarter of 2024. However, they believe copper has stronger potential to outperform aluminum due to recent underperformance and improving market dynamics.
Despite this optimism, analysts warn that a deteriorating global economy could have a more significant negative impact on copper than on aluminum because copper is more sensitive to economic fluctuations.
