Copper, Covid, China – Talking Points
- Copper prices continue to push further into multi-year highs
- China seen as a prime driver for future copper price growth
- Green energy push to be long-term boon for the red metal
Copper futures are trading at levels not seen since early 2013 as the industrial metal continues to rip higher. The $3.50 mark was breached at the start of the month in the COMEX futures market and prices are holding near that level. Since the Covid-induced selloff to the March low, LME Copper prices have gone on to rally nearly 40%.
While other assets have also rallied following the market pandemonium earlier this year, copper has outpaced higher profile assets such as the S&P 500, gold, and silver. The red metal’s impressive rise is partially explained by Covid’s initial economic impacts, including disruptions to supply and demand-side factors.
Indeed, Covid initially sank copper prices, however, enormous and ongoing stimulus measures around the globe continue to bolster the industrial metal. The futures market continues to be outstandingly long compared to the early half of the decade according to the latest COT report.
Copper Futures vs COT Total Longs
Chart created with TradingView
China: A Prime Driver in Copper Prices
Along with anticipated supply and demand factors, copper is also influenced by broader market sentiment.. One country alone accounts for over half of global copper demand - China. With that in mind, analyzing China’s copper consumption, economic growth and current stimulus measures are key to forecasting the red metal’s path forward.
Chinese copper imports have risen to staggering levels this year. Accordingly, prices in the red metal reflect that demand. Looking at the correlation in Chinese copper imports against price illustrates the impact China can have on the metal, especially recently (chart below). Although imports have eased in recent months, they remain extremely elevated in historical context. That said, when comparing the current relationship to the commodity bull market of 2009, one could argue that copper may have much further to go.
Copper vs Chinese Copper Imports
Furthermore, China looks to focus on driving economic growth through domestic demand. The country is also expected to continue heavy investment in its infrastructure. Copper benefits greatly from this type of investment due to its broad use in construction and industry. The International Monetary Fund’s (IMF) latest economic projections see China as the only major economy to experience growth this year at 1.9%.
Source: International Monetary Fund
Furthermore, China will unveil its new Five Year Plan in the first half of 2021. China’s recent Fifth Plenary Session hinted at heavy investment in low-carbon technology. This further aligns with China’s earlier pledge to reach carbon neutrality by 2060. The shift will require massive investments in clean energy programs. The implications for copper are enormous and copper may provide investors with a long-term proxy play on stimulus-driven economic growth, particularly in China.
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--- Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter
