Copper cleared the pivotal US$3 per lb. level on Monday as the recovery in the Chinese economy, the world’s top consumer of the metal, gains momentum.
Copper for delivery in December trading on the Comex market in New York changed hands for US$3.065 per lb. (US$6,757 per tonne) in early afternoon trade, the highest since June 2018. The move brings gains of 10% for 2020 and 58% since the Covid-19 lows struck in March.
“Prices still have the potential to increase, but in the short-term they will be floating around,” analyst He Tianyu of CRU Group told Reuters. He expects a price rally from mid-September, when the traditionally strong copper season kicks in.
Jonathan Barnes of Roskill said in a recent report that the copper price will likely rise further towards the end of the year, and that the current environment has strong parallels to the rebound in the copper price after the global financial crisis following massive stimulus from Beijing.
On the Shanghai Futures Exchange, the bellwether metal racked up its fifth straight month of gains in August, which is the longest winning streak since 2009.
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 just shy of US$4.58 (more than US$10,000 per tonne) in February 2011.
Roskill says the effects of Covid-19 could decrease world consumption of the metal by 3-4% this year, but that a drop in mine output and scrap flows has had an even larger impact on the market.
A key gauge of Chinese economic activity released today showed continuing expansion of the country’s manufacturing and services sector in August.
While the official manufacturing PMI index declined slightly to 51.0 (a reading above 50 means expansionary conditions) on the back of flooding in the manufacturing centres in southwest China, the services sector leaped to 55.2, a 31-month high. Meanwhile, the construction index stayed above 60 on the back of Beijing’s stimulus programs.
“It’s not too surprising that the manufacturing PMI has started to level off since growth in industry has already returned to its pre-virus level,” Capital Economics stated in a research note. “But with fiscal support on course to be stepped up in the coming months, we still think there is some further upside to industrial activity. Meanwhile, it’s encouraging that the recovery is broadening out, with service sector activity now playing catch-up with industry.
“This is consistent with our view that an investment-led rebound would eventually also shore up consumer sentiment and household spending, keeping the overall economic recovery on track.”