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(Kitco News) – Like Greek legend, the copper market appears to have flown too close to the sun in its historic rise to record levels. Today, prices are coming down to earth, according to a research firm.

In a report released Tuesday, Julian Kettle, senior vice president and vice president of metals and mining at Wood Mackenzie, warned investors not to chase copper prices as the current rally could significantly hurt growth at long term market.

The kettle warning comes as copper prices have fallen sharply, down nearly 6% from their recent all-time highs, and testing strong support above $ 4.50 a pound.

July’s high-quality copper futures traded at $ 4.59 a pound, down nearly 3% on the day.

The copper rally was fueled by a major tightening of supply in the market. Demand for copper has grown significantly as countries seek to modernize their power infrastructure as part of the growing green energy transition; at the same time, the mining supply has not been able to meet this demand.

However, Kettle noted that as prices rise, there is an increasing risk of substitution and economy among manufacturers.

“During the last supercycle, the copper industry was unable to meet China’s insatiable demand, causing prices to rise sharply initially. However, subsequent substitution in the form of change , economy and “lost growth” led to the copper market losing 2% or 400-500 kt per year of aluminum demand when prices were above US $ 3 per pound, “he said. declared.

Kettle added that many forecasters ignore the fact that aluminum can be an effective substitute for copper.

“While the conductivity of aluminum is about 40% lower than that of copper, it has interesting properties – in particular its density, which represents only 30% of that of copper. This means that an aluminum cable is about 52% of the weight of a copper cable with the same conductivity, a property offering handling and installation advantages, ”he said.

“While copper is the metal with the best technical characteristics, once economics is brought into the equation, its superiority is much less clear-cut. In fact, given its lower cost, aluminum trumps copper in virtually all realistic long-term price scenario, ”he added.

Kettle added that if recent short-term price projections for copper exceeding $ 5 a pound prove to be correct, it could create long-term damage in the market, especially if aluminum prices don’t keep up.

Although aluminum prices have seen a strong rebound this year, prices are still far from reaching record levels. Like copper, aluminum is under some selling pressure. Aluminum futures on the LME last traded at $ 2,426.50 per tonne, down 2% on the day.

“So it seems appropriate to take inspiration from Greek mythology: when Icarus ignored Daedalus’ instructions not to fly too close to the sun, the wax in his wings melted and he fell from the sky. not Daedalus, I believe stakeholders would do it well to heed the warning that too high copper prices will not be good for the metal in the long run, ”he said.