Several trends favor copper, nickel

The commodities market has lived up to its reputation for volatility in 2020, with COVID-19 creating supply and demand scenarios that have left even veteran traders uncertain about not only where markets are headed, but where they sit presently.

The status of global commodities trading was the topic of discussion for a panel convened for the Trading Asia event, hosted by Euromoney’s Global Investor Group and conducted online Sept. 17. The discussion included updates on energy and agricultural commodities, but metals also received considerable attention.

When asked by moderator John Browning of Shanghai-based BANDS Financial whether commodities could be headed for another “supercycle” heading out of the COVID-19-related downturn, panelist Saad Rahim of Netherlands-based Trafigura said it was feasible, “with the obvious caveat that it depends on how demand recovers.”

In the metals sector, Rahim cited “an underinvestment on the supply side” as being a factor that could affect pricing in late 2020 and into 2021. Concerning mining in particular, Rahim said, “We haven’t really seen that reinvestment that is needed going forward.”

He said that was particularly true for metals such as copper and nickel that have a sizable presence in “electric vehicles (EVs) and grid buildout and robotics. All require more copper and nickel in particular.” The demand in those growing markets could be enough to boost prices, especially weighed against the still low levels “of supply that we see committed,” added Rahim, who is Trafigura’s chief economist.

If EV sales return to the growth trend they had before COVID-19, that would be a foremost factor, said Rahim. “An EV requires four to five times more copper than an internal combustion engine vehicle,” he remarked. “The amount of wiring that goes into [an EV makes it] effectively a computer on wheels.”   

Considering that, plus a copper-heavy copper infrastructure, and the nickel that goes into EV batteries, “We’re looking for that incentive price to come in [to spur mining projects, or] there is a deficit that starts to emerge” in mined supply, said Rahim. “Stimulus efforts in China and Europe in particular focus on new energy; that is going to be copper intensive,” he added.

Sachin Patel, who works from Singapore for Chicago-based CME Group, described copper’s journey in 2020 from below $2 per pound in the spring to above $3 per pound in September as “amazing.” The price recovery, he said, “seems to have been driven by China itself” on the demand side, along with “some supply difficulty and positioning [issues].”

On the demand side, “China’s Imports for the past two to three months have been a sight to behold,” he commented. Patel said if any additional demand recovery emerges from North America and Europe, it would put considerable upward pressure on the price of copper.

Matthias Rietig of the Japan-based JPX commodity exchange said the commodities market could become even more volatile in the near- and medium-term future. He expressed concern about “all the money that’s been printed, [which] is in a way scary.” Rietig added, “We can be bullish on metals, but it’s going to be quite choppy.”

Panelist Brett Cooper of Singapore-based StoneX Financial Pte. Ltd. focuses on agricultural commodities. He remarked that “everything that has been done to defibrillate the economy, plus low energy costs” had put in place “really good terms of trade [for[ stimulating production.” He added, however, “We can’t take the demand recovery for granted.”

Moderator Browning expressed enthusiasm for new global trading contracts emerging from China, including one for copper that could come online as soon as October. “We feel it could overtake the current contracts, in time, to be the benchmark [in] trading copper,” he said of the BANDS Financial viewpoint.