Copper demand is rising, while inventory and supply are falling, creating a burgeoning red metal bull market
2020-11-19 09:19:00
Dr Ryan Long examines some of the causes of the recent sharp rise in copper prices
Early this month the three-month copper price on the London Metal Exchange (LME) reached US$7,034 per tonne (t), its highest level in two and a half years (Figure 1).
This is a sharp rise, 50% in seven months, from US$4,684/t in late March-2020, when the break-out of the COVID-19 Pandemic sent investors fleeing from the red metal.
Figure 1: LME Copper Price
The combination of Joe Biden’s US election victory and the progress made towards the creation of a vaccine for the coronavirus vaccine buoyed investor optimism for copper in the short-term leading to this month’s rise. However, this short-term price rise is just a part of much longer-term up-trend in the copper price.
Mid-Term
During September, copper inventory at the London Metals Exchange (LME) reached a five-year low, a massive 85% reduction from its peak inventory in April 2018 (Figure 2). The LME is the largest repository of copper stocks globally so this substantial reduction in inventory is an important indicator for the health of the global copper market.
Figure 2: LME Copper Stocks Level
On the mine supply side, we could see mid-term disruption from copper supply powerhouse, South America, which has seen an uptick in COVID-19 cases. South America supplies around 40% of the world’s primary copper metal, so its influence on the copper market is significant.
On the mid-term demand side of the copper equation, China consumes around half of the global supply of copper (51% 2019), about 24 million tonnes. China has rapidly recovered from the pandemic, growing at the fastest pace in 19 months during October 2020, driving increased demand.
The Chinese government is actively encouraging the construction industry to further bolster its recovery, which will continue to boost demand for copper. Many industry bodies are expecting to see a significant increase in copper demand during 2021, as other countries follow Chinas lead by increase spending on infrastructural projects.
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