Analysts are predicting “Dr. Copper” will go on a sustained rally as the China-led global economy shows signs of climbing out of the coronavirus slump, though some long-term investors are adamant about staying away.
The benchmark copper price on the London Metal Exchange in early May hit a record high, at $10,460 a ton, and has since remained above $10,000. Its price had not been near that threshold for a decade; to reach it, it almost doubled in a year.
Market analysts are not surprised.
The leap “was expected,” said Takayuki Honma, chief economist at Sumitomo Corporation Global Research. “Sooner or later the price would have gone above $10,000.”
The impact of the pandemic has done little to soften demand, mainly due to China’s speedy recovery.
China is the world’s biggest copper buyer, consuming half of all global output. The country’s imports of unwrought copper and products rose 9.8% during the January-April period compared to a year earlier.
“There is almost no reason for copper prices to go down,” said Tetsu Emori, the CEO of Japanese investment advisory Emori Fund Management. Emori noted that copper is turning into an attractive commodity for investors, especially as major countries push for decarbonization, which is expected to boost demand for electric vehicles as well as wind and solar power generation stations.
Copper is mainly used to make electric cables and is indispensable to infrastructure builders. It earned its “Dr.” honorific with its uncanny ability to predict the health of the world economy.
China’s recovery has triggered a price jump for many commodities despite the pandemic. In just one year, iron ore prices jumped 78% and the benchmark price of lumber tripled. The price of other metals such as nickel and aluminum has also risen.
Many analysts say copper is unlikely to fall well below $8,000 a ton.
“Copper is now exploring a new price equilibrium point,” Honma said. The chief economist for Sumitomo Corporation Global Research is forecasting that “copper’s new price level will go up a notch.”
His bullish view is not groundless.
Some global banks are predicting a multi-year super-cycle for commodities, driven by shortages and strong demand from the renewable energy and electric vehicle sectors.
Goldman Sachs estimates that copper demand will grow nearly 600%, to 5.4 million tons, by 2030 due to the green transition. However, the market could face an 8.2 million ton supply gap by 2030.
All experts agreed that the energy transition trend, which serves major economies’ carbon neutralization targets, will benefit some metals, notably copper, nickel, and lithium.
Another poll at the seminar showed a dominating preference for copper as the most benefited metal in the next 6-12 months at 52.69% of all voted, followed by lithium at 16.13%, aluminum at 13.98%, silver at 8.6%, nickel at 5.38% and cobalt at only 3.23%.
Copper will be a dark horse, supported by infrastructure demand and the fast-growing new energy vehicle market, said Liu Shoujian, deputy chief executive officer of CCB International.
Sucden Financial’s Wilkes said, “copper demand from … the green economy is looking strong.”
A new energy vehicle needs 80 kg (176 lb) of copper compared with 23 kg in an internal combustion engine vehicle while charging, wiring and grid investment of renewable energy will also generate demand for copper, he added.
Copper Long (Buy)
Enter at: 465.482