Commodities

Demand lull to pause copper’s blistering rally

Reuters London | Updated on January 22, 2021

China’s imports slide in Q4 of 2020; lesser inventory may support prices

Copper’s rapid recovery in recent months is expected to pause, but it will pick up momentum after the Chinese New Year holiday as demand gradually overtakes supply leaving the market with a substantial deficit.

Benchmark copper on the London Metal Exchange trading around $8,000 a tonne, near eight-year highs, is up more than 80 per cent since demand tanked in the first half of 2020 as coronavirus lockdowns floored industrial activity.

Reasons for the expected lull include scrap, which typically starts to emerge at high prices, and the risk of wider lockdowns undermining industrial activity in the first quarter.

China factor

However, most important is slowing copper demand growth in top consumer China where imports have levelled off ahead of the Lunar holiday in February when many factories close.

China imported record volumes of unwrought copper and copper products last year, but the December number fell for a third consecutive month to 512,332 tonnes.

“There isn’t going to be a lot of impetus from China to take the market forward until March,” said Roskill Principal Consultant Jonathan Barnes, who reckons global demand amounted to 23.3 million tonnes last year.

“China’s share of the copper market at 55 per cent is now even bigger than it was because its consumption rose last year and almost everywhere else declined.”

Supply, stocks

Copper supplies are expected to rise this year as Covid-related problems come to an end, but with prices at elevated levels the potential for disruptions remains as mineworkers seek higher wages.

This, alongside sliding stocks in LME registered warehouses at 87,725 tonnes, which have more than halved since October and are at their lowest since September, will support copper. Low stocks will help propel prices higher later in 2021.

“Any price pullback to $7,600 should be used to build longs. We expect copper prices to reach $9,500 by mid-2021,” analysts at UBS said. They expect copper supply to rise 2.9 per cent this year and a deficit of 469,000 tonnes.

“We expect global refined copper consumption — driven by manufacturing, housing, and infrastructure — to grow 4.6% in 2021.”

Published on January 22, 2021

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