Why the pandemic could trigger a copper rally


Factory workers get large copper tubes from the coils that will be packaged and shipped. Michael S. Williamson | The Washington Post | Getty Images

The pandemic coronavirus is poised to usher in the “copper age”, according to the director of energy, climate and resources at Eurasia Group, as governments double down on the investments that will drive demand for red metal.The commodity, which is widely regarded as an excellent indicator of the overall condition of the economy, took a hit during the coronavirus crisis.

The collapse in demand drove prices down to the height of the pandemic in March. However, the copper benchmark for copper on the London Metal Exchange was trading around $ 5.909 per metric ton on Tuesday, up 0.5%. Nearly five months high of $ 5,928 hit earlier this month, according to Reuters.

Henning Gloystein’s Eurasia Group said in a research note on Tuesday that the pandemic is expected to accelerate government-supported trends in environmental investment and digitization, which “heralds an upcoming boom in demand for copper.” ”

“Huge green and digital stimulus programs, particularly in Asia and Europe, will create the conditions for a surge in demand for copper – electric vehicles, 5G networks, and the production of renewable energy all require large amounts of red metal, “” Gloystein said.

Demand for copper could drop by 5% in 2020 due to the recession-driven pandemic, he projected. But, large-scale fiscal stimulus would boost demand for the metal back to pre-crisis levels next year, he noted, with traders and miners expecting consumption from a 4% rebound in 2021.

The Bank of America analysts raised their forecast prices for the metal earlier this month, expecting prices to rise 5.4% in 2020 to $ 5.621 a tonne. They kept their projection for 2021 unchanged at $ 6,250 per tonne. The forecast, they said, was for the “remarkable fiscal stimulus package” and expects there will be no more commodity purchases, the locked-in emerging country.

Morgan Stanley analysts also expect the sector to rebound quickly for pre-pandemic levels, Reuters said, with global stimulus measures, Chinese infrastructure spending and supply disruptions expected to boost Requirement.

Green investments

According to the Eurasia Group of the note, clean energy and digitization programs have been predicted to push average annual growth in copper demand up 2.5% this decade, which is likely to increase consumption around 30 million tonnes by 2030.

Policy changes in Asia and Europe could play an important role in increasing demand, Gloystein said, with shifts in transportation expected to be the “largest copper pilot in use.” ”

“Electric vehicles, the industry currently represents only 1% of the demand for copper. By 2030, many analysts expect the figure to reach 10%, “he said.

China plans to invest hundreds of billions of dollars in digitizing its economy over the next decade, Gloystein noted, after all countries in the world have committed to massive investments in green infrastructure and electric vehicles.

“Copper will be a key element for virtually all of the industries that are being promoted,” he said. “Welcome to the copper age. “

Political fallout

While Gloystein recognized that the nations of the Southern Hemisphere with large copper mines are the main beneficiaries of rising demand for copper, he noted that China’s influence in the industry could see it gain of political weight in Australia and South America.

“The rise of copper in the economy will have political implications,” he said. “China’s dominant position as a buyer of raw materials risks adding more political clout to copper mining regions. ”

China is the largest user of refined copper in the world, according to the Eurasia Group, with the country consuming around 13 million tonnes of product in the past year.

Tensions between China and Australia have intensified in recent years, after the latest Chinese telecom giant Huawei prescription of its domestic 5G networks, supporting the US in claims that the company’s presence in infrastructure posed to national security risks.

Relations have been damaged as a result recently by the Australian government by calling for an investigation into China’s role in the coronavirus epidemic, and by China by slapping import tariffs on certain Australian products.

While there is some support among Australian lawmakers to recalibrate China’s exports, Gloystein noted that rising demand for copper could limit the country’s ability to achieve this goal.

Meanwhile, China’s influence could increase in Chile – the world’s largest exporter of copper, which is a participant in the initiative’s China, Belt and Trade Route, he added.

“In Chile, sales to China already account for about a third of total exports,” the note said. “More and more copper sales will likely increase dependence and expose the country to Beijing, political pressure in many areas, including the Pacific trade negotiations, the use of Huawei equipment, and the relations with the United States »

Likewise, Gloystein warned, is true of Peru, which exports nearly twice as many goods to China, as it does for Europe or the United States.


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