The faces of copper fans are frequently as red as the metal they prize. Its price often fails to match demand prospects. Recently, bulls have had less to feel embarrassed about. The metal’s value has jumped to seven-month highs, above $9,120 per tonne.
Not much has changed — apart from sentiment. Traders have bought up copper anticipating the recovery of China’s economy as Covid-19 restrictions are relaxed.
That makes some sense. More than half of copper demand comes from China. The surge in Covid cases will take a while to fall. But Beijing has primed the pump on construction activity. Late last year it began relaxing restrictions on its hard-pressed real estate industry. Construction accounts for almost a quarter of China’s copper demand.
Moreover, Chinese smelters that turn copper concentrate into metal constitute a bottleneck. A lack of capacity combined with maintenance shutdowns has constrained supply, raising spot charges for smelting copper.
China’s inventories have meanwhile dropped below two weeks’ worth of consumption, according to BMO Capital Markets. That is the lowest figure since at least 2009.
Metal traders point out another factor influencing copper’s value: provenance. In Europe, most of the available metal in warehouses has come from Russia. Norilsk Nickel, for example, also produces a lot of copper. Not surprisingly, many industrial consumers do not wish to buy this metal.
European inventories are therefore up sharply in recent months, unlike in Asia and the US.
Portfolio managers have hoovered up shares in the largest listed copper miners and smelters. These include London-listed Antofagasta, Freeport in the US and Jiangxi Copper, which has smelters in China. Their share prices have climbed at least 50 per cent since October.
Finally, a falling dollar also puts the spotlight on metals. Their prices fall in other currencies. Hedge funds have been buying copper in the hope this shift will stimulate global demand.
A less hawkish stance by the US Federal Reserve of late will only boost the optimism of copper bulls. This rally should retest the highs of early last year.
The Lex team is interested in hearing more from readers. Please tell us what you think of the copper price in the comments section below
Source: Financial Times
