Copper demand is rising, while inventory and supply are falling

The perfect storm is forming for a great spike in Copper prices


Featured article (published on November 19, 2020 by Proactive Investors):

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.


Longer-Term

In the longer-term, the supply side of the copper market continues to suffer from a lack of new large-scale copper discoveries, which in-tern means fewer new copper projects are being advanced into production. Older large-scale operations are making the transition to mining deeper portions of orebodies and consequently are become more expensive to operate and less productive as they approach the end of their lives.


Long-term demand is expected to be driven by the electrification of motive transport. Battery-powered electric vehicles (EVs) contain around 83kg of copper, which is 260% more copper than is used in an internal combustion engine. The number of EVs in use globally is expected to grow by 780% from c. 5mln in 2018 to c. 44 million vehicles per year by 2030, driving long-term demand for copper.

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