Copper was once again approaching the psychologically important US$3 per lb. level on the back of falling inventories, booming Chinese demand and pandemic hit supply from South America, the U.S. and Africa.
On Aug. 26, Copper for delivery in December trading in New York jumped 1.5% to US$2.9965 per lb. ($6,605 a tonne) in afternoon trading, bringing gains in 2020 to more than 7%, and 50% since the Covid-19 lows struck in March.
A new report from Roskill suggests the rally in copper, which has surprised many with its speed, has further to go.
Jonathan Barnes, associate consultant for copper at the London-based metal and minerals research firm, says while the effects of Covid-19 could decrease world consumption of the metal by 3%-4% this year, the drop in mine output and scrap flows has been greater.
This is most visible in the fall in inventories around the world.
Globally, total visible stocks, which include those on exchanges and bonded warehouses in China, fell by 40% from March through July to below 600,000 tonnes. LME warehouse inventories are at 13-year lows.
China is responsible for more than half of the world’s copper consumption, and the country is buying copper at record-setting rates.
“China is importing more refined metal from nearly every country suggesting a structural shift, not a temporary change,” says Barnes.
“If you are looking for signs of panic buying, you can find evidence of that in China – total Chinese stocks represent less than two weeks’ consumption at current rates of use.”
In the rest of the world, where demand has dropped by much more relative to China, stocks represent only one week of consumption.
The lack of available scrap – imports are down 50% in the first half – after Beijing delayed new importing rules, has forced the Chinese buyers to replace secondary sources with cathode, further driving down visible inventories.
Roskill estimates a 300,000-tonne shortfall in imports of secondary materials — scrap, ingots and granules – into China from January to July.
Barnes believes global scrap flows may not normalize until the first quarter of next year, but would depend on new rules in China.
Roskill’s sources have not been able to confirm that China’s State Reserve Bureau has been buying up strategic stocks of copper, “but if they were, they probably would have done so earlier, when prices were much lower,” Barnes says.
Disruptions to mine supply could be between 750,000 to 1 million tonnes in 2020, with eight out of the 10 largest miners recording lower output during the first half of the year.
China’s concentrate imports are down year on year, while sourcing anodes from the central Africa copper belt is also hitting roadblocks.
Barnes says China’s two-year restocking cycle is rising in amplitude as the country’s dominance in the copper market increases, and he expects an 11.5% rise for the full year in copper imports.
The country has a structural copper market deficit, and it restocks whenever LME prices appear attractive. Moreover, says Barnes, China can take a long term view and use tomorrow what it does not need today.
Roskill expects trade data to show another bumper August for imports, despite being a seasonally muted month for shipments.
The copper price will likely rise further towards the end of 2020, Barnes says, and the current environment has strong parallels to the rebound in the copper price after the global financial crisis.
Copper hit a low of US$1.32 per lb. in January 2009, then surged to US$3.55 by April 2010, on its way to an all-time high of US$4.58 (more than $10,000 per tonne) in February 2011.