Copper prices jumped to a 10-year high and were trading just under $10,000 per tonne on the back of supply constraints coupled with a surge in demand.
A rebound in global economic activities after a COVID-19 pandemic induced slump, massive stimulus packages in the US, and increasing usage of green mobility (electric vehicles) have helped propel the demand for the industrial metal copper.
The metal is also known as Doctor Copper as it is believed to be an indicator of what the economy is doing. Copper’s wide industrial use helps us to know the health of the economy, and the increasing price of copper is a sign that the global economy is recovering, experts say.
Here are some reasons behind the sharp surge in copper prices:
The port workers and mining associations in Chile have threatened a strike in a protest against President Sebastian Pinera’s move to block a bill allowing people to make the third round of early withdrawals from their pension funds, reports said.
Chile accounts for about a quarter of the world’s copper supply.
"These concerns over the supply of copper lifted the prices. Additionally, the threat of COVID-19 in nations in South America may hamper the export of key industrial commodities like iron ore and copper," said Ajay Kedia, director, Kedia Commodities.
Further, investors are also betting that copper will be a key raw material in the Joe Biden administration’s infrastructure plans and a global transition to sustainable energy, he added.
The inventories of copper in London Metal Exchange’s registered warehouses have recently fallen and it is expected to decline further, analysts said.
LME Copper inventories stood at 155,100 tonne as of April 26, 2021, falling over 10 percent in the last 10 days.
The demand for copper from China has picked up with the country increasing its construction activities. China accounts for around half of global copper consumption.
"China, the largest Copper consuming nation, moving into a period of seasonally strong demand post their winter break kept Copper prices elevated," said Yash Sawant, research associate, Angel Broking.
Strong economic growth in the US is expected to boost the cyclical sectors with more exposure to other global economies such as materials.
Copper prices have also benefited from global economic stimulus following the Covid-19 pandemic and the positive news on vaccine development, experts said.
Shift Towards Green Infrastructure
The usage of electric vehicles (EVs) is rising across the world as we shift towards cleaner energy sources to reduce the carbon footprint.
Electric vehicles require more than double the copper of an internal combustion engine vehicle. With more EV commitments from car companies, the demand for copper is expected to surge going ahead.
Copper Price Can Surge to $15,000 by 2025: Goldman Sachs
Goldman Sachs, in a recent report, said it expected the price of the red metal to surge to $15,000 by 2025. According to a note titled, "Copper is the new oil," the bank believes annual demand for copper will surge 900 percent from current levels to 8.7 million tonne by 2030, reports said.
"Ripple effects into non-green channels mean the 2020s are expected to be the strongest phase of volume growth in global copper demand in history," Goldman Sachs said.
"The copper market is unprepared for this," it added.
(Edited by: By Jomy)