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Copper Unstoppable Owing to Chinese Inventory and US Stimulus

Copper Prices could be rallying to touch $10K per tonne mark on LME (London Metal Exchange) with prediction of a super-cycle* by many analysts around the Globe. Since 2nd February 2021 Copper prices have increased from $7755.5 per tonne to $8416.5 per tonne on 15th February 2021 which is a total increase of around 8.5%.

*A super-cycle can be defined as decades-long, above-trend movements in a wide range of base material prices deriving from a structural change in demand.

Factors that May Have Contributed to the Latest Rally in Copper Prices

Copper has rallied nearly 90% since the depth of the pandemic in March till date.

LME Copper Price Graph, March 2020-Feb 2021
Increase in Copper Prices since March 2020

Stimulus Support Hope by new Biden Administration in US

The newly elected Biden administration has showed intention to release a $1.9 trillion aid package for revival of US industries which have been struggling since breakout of pandemic. Commodities including Copper are finding supportive sentiment in stimulus plan talks from US Treasury Secretary Janet Yellen. This hope of stimulus package is driving demand of Copper as US is one the largest consumers of Copper and also the biggest economy.

China’s thinning inventories

Copper demand in China, the ,World’s top metal consumer typically softens as businesses close for the week-long Spring Festival, which starts on February 11. This results in increase of Chinese Copper inventory, but this year the trend is surprising, Copper inventories in China have dropped to near decade lows on robust demand from factories that are maintaining high operating rates over the usually slow holiday period. Refined Copper inventories in warehouses tracked by the Shanghai Futures Exchange were at 68,588 tonnes on 5th February 2021, lowest since 2011.

Most Chinese manufacturers have not more than two days holiday on this Chinese New Year. Chinese Government has called upon its migrant workers to avoid travel this year to curb the spread of the corona virus; factories with strong order books have shortened planned shutdowns and are hoarding Copper for their own use which has resulted in decreased inventories.

Decreased Copper Mining

Effects of the Coronavirus pandemic on Copper supply continue to be felt. According to the International Copper Study Group (ICSG), Global mined output of Copper during the first 10 months of 2020 was 0.5% lower compared to 2019 levels.

In Peru, the World’s second largest Copper producer, Copper output plunged 12.5% to 2.15 million tonnes in 2020 YoY, the country’s Energy and Mines Ministry saCopper Unstoppable Owing to Chinese Inventory and US Stimulusid on Monday.

Copper is often used as a gauge of Global economic health therefore the earlier plummeting Copper demand is showing signs of quick recovery and the prices will settle only when the pre-covid economy levels are attained.

Sooner than Expected Growth Post-Pandemic

Another factor for the gap between demand and available inventories is the rapid increase in economic activity Globally post-Pandemic which has happened sooner than expected.

Copper Super-Cycle Quite Possible

Earlier the analysts were expecting Copper price rise to be a cyclical phase just for the year 2021, but now deep supply deficit and low inventories which are expected to persist for coming years is giving indication of a super-cycle for Copper as well as Aluminum. This forecast is limited to Copper and Aluminium only and price rise in other commodities is expected to be cyclical for 2021 and to pass eventually.

It is possible that Copper may breach the $9,000 per tonne level in next few months and move above $10,000 per tonne in six+ months.

Copper being a major metal to be consumed by the Electrical Industry, including Cables & Wires Industry, the load transfer is expected very soon on all the allied industries and projects. Such steep rise in prices of important metals such as Copper, Aluminium and even Steel may lead to slow-down or even halt progress of various important projects that are under planning or in implementation phases in the short-term.