The copper market is experiencing a wave of investor fervor not seen in a decade, with London copper rising to $7,700 per ton on Monday, a nearly seven-year high.
Looking back over the past 10 years, copper prices have been depressed for most of that time, falling below $5,000 per tonne in 2015-16 and earlier in 2020, more than 50 percent below their all-time high in 2011. Now, traders are eagerly awaiting a repeat of the $10,000/tonne bull market glory of 2011.
Traders are optimistic about copper’s performance for several reasons.
Short-term drivers – tighter copper supply and investment flows fueling it.
Long-term drivers – The prospect of a global economic recovery increases expectations of rising inflation, which will benefit the overall commodity market; governments are investing in green stimulus programs, which will require the consumption of large amounts of industrial metals for infrastructure.
Short-term drivers: supply-demand imbalance + active investor participation
Since the outbreak of the epidemic, there has been an imbalance between supply and demand for copper, and the situation of supply exceeding demand has caused copper prices to rise.
From the demand side, copper demand has been less affected by the neo-crown epidemic, but supply has fallen by the impact of the neo-crown epidemic, superimposed on this year, China has increased purchases when copper prices fell, and imports of refined copper and copper products surged 41%, an increase of 1.6 million tons, more than Germany’s annual demand, which all led to a very tight supply of copper.
In addition, active investor participation has been a key factor in the short-term rise in copper prices.
According to Citigroup, the current bullish position in copper has reached its highest level on record since 2014. The bank’s analysts point out that copper has outperformed non-exchange-traded metals such as manganese and molybdenum, suggesting that copper prices are being driven by investor behavior.
Citigroup analysts, including Max Layton, said in a report last week.
“With real economic indicators generally weakening in countries other than China, we can say that an increase in speculative positions in copper has already pushed copper prices higher.”
Moreover, the influx of new money may also push copper prices further, and as central banks respond to the contagion by releasing an unprecedented wave of liquidity into global markets, a correction in speculative positions in copper may not occur.
Long-term drivers: rising inflation expectations + national green stimulus plans
So far this year, inflation expectations are rising and commodities are coming back into favor, with the Bloomberg Commodity Spot Index up 43% since March, as the dollar weakens due to global currency overshoot and the prospect of a global economic rebound is added to the mix.
Evy Hambro, head of global thematic and sector investments at BlackRock, said.
“Given the unprecedented increase in monetary and fiscal policy easing, we expect inflation to exceed current market expectations. Historically, betting on rising inflation expectations can be achieved by investing in commodities and mining-related stocks.”
All commodities will benefit from rising inflation expectations, but not just copper, as green stimulus programs in various countries will consume large amounts of the industrial metal, spurring a significant rise in demand for copper, which is expected to be among the most popular investments for long-term investors.
Copper market veteran David Lilley stated.
“The world is redesigning transportation, power generation, information storage, and goods distribution, and governments are supporting and encouraging this transition, which makes the increase in copper demand highly anticipated.”
As the world begins to accelerate its transition to green energy, skepticism about the long-term future of oil is growing, but given its industrial uses, copper is likely to benefit from that transition.
Mark Hansen, chief executive of Concord Resources Ltd, a London-based metals trading firm, said.
“We are in an unprecedented situation with more money than ever looking for where to invest. Not since the demand-driven bull market 10 years ago has the copper market had as much green investment potential as it does now.”
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