High hopes

Copper had a strong start to the year, but that momentum was disrupted by the novel coronavirus outbreak in China, the world’s largest consumer of the red metal. As China instituted lockdown measures to contain the spread of the virus, copper demand in the country waned. As the virus spread beyond China’s borders, so did lockdown measures, curtailing manufacturing activity globally. The red metal went from a high of $6,300 per metric ton on the London Metal Exchange (LME) Jan. 16 to a low of $4,617.50 per metric ton March 23, a decline of 27 percent. Copper pricing has strengthened since then, ending May at $5,332.50 per metric ton. As of June 16, copper’s LME price increased to $5,759.50 per metric ton, a level last seen in February.

Madhurima Das, a writer for Zacks Investment Research, says copper’s gain in value has been fueled by economic stimulus from central banks, economic recovery in China, rebounding U.S. retail sales and hopes of more federal stimulus.

She adds that China’s stimulus program that is focused on new infrastructure and urbanization “will require massive amounts of copper.”

This comes at a time where the overall supply of the metal is likely to be lower as mines in Chile, China and Peru had to suspend production in response to COVID-19, Das writes, which should further increase the price of copper.

“Copper has a variety of end uses, therefore copper prices are seen by many as a gauge of economic confidence.”

Copper scrap demand and pricing also likely will be buoyed as a result.

Copper has a variety of end uses, therefore copper prices are seen by many as a gauge of economic confidence, which is why the metal has earned the nickname Dr. Copper.

Bank of America analysts have increased their price forecast for copper in 2020 by 5.4 percent to $5,621 per ton, keeping their 2021 projection unchanged at $6,250 per ton, CNBC reports.

The Bank of America analysts acknowledge the potential for more disruption, however: “Global copper consumption could contract by 18 percent year on year in 2020 if global GDP (gross domestic product) drops by 4.2 percent year on year, the base case of our economists.” They add that such a decline “would be devastating for the red metal and also the wider mined commodities complex.”

CNBC reports that the Bank of America analysts question whether such a decline in GDP is realistic, suggesting that even if Western economies’ rebounds are not as swift as China’s, the easing of lockdown measures likely would lead to growth in raw material purchases globally.