Copper supply squeeze on horizon as China’s demand grows
This week copper reached a two-year high of $6,800 a ton. A growing number of copper market analysts and traders are of the opinion that prices are about to rise even further, in light of the declining spot reserves.
To a considerable extent this has been caused by unprecedented appetites from Chinese enterprises, as they emerge from the industrial lockdown brought about by the coronavirus pandemic. With factories now producing cars, household appliances, smartphones and electrical cables at accelerated rates, China’s Caixin manufacturing purchasing managers’ index for August reached its highest reading since January 2011.
In 2011 copper prices reached a record $10,190 a ton. Analysts from Citigroup this week have advised clients that if stockpiles dwindle to 2011 levels then a price of $8,000 is possible.
A fund manager at Red Kite Capital in London, George Daniel, is part of this consensus. He commented: “China has been sucking everything up. It feels like we’re getting into a period where there’s just no copper around.”
The current situation mirrors that of the early 2000s, the last time that Chinese companies bought up serious amounts of copper.
Copper inventories on the London Metals Exchange are currently at their lowest levels in 15 years. A year ago, reserves would have lasted their users for five days; now it is little more than a day.
Previously, it was possible for copper stored in other parts of the global supply chain to be diverted to the exchange’s storage depots. But now there are signs that copper is not able to flow back to the bourse as freely as before, so strong is the demand from China.
Copper production from top ten companies to increase by 3.8%
Copper production from the world’s top companies is set to increase by up to 3.8% this year, following a fall of 0.2% in 2020, GlobalData analysis reveals. Last year’s marginal slump saw production drop to 11.76 million tonnes (Mt).
The initial impact of the COVID-19 pandemic on mining operations was immense, however, six of the ten largest copper producers succeeded in increasing output last year. In 2021, copper production from the top ten copper companies is expected to bounce back, rising by up to 3.8%, to reach 12.2Mt, according to GlobalData, a leading data and analytics company.
The highest increase in copper production was by Canada’s First Quantum, which, despite all the challenges, reported 10.4% growth in 2020. The company’s Sentinel mine in Zambia and Cobre Panama were key contributors to this growth. While the latter remained under care and maintenance between April and August 2020, it delivered record production levels during the subsequent months.
Codelco, the world’s largest producer of the red metal used in electric vehicles, also bucked the trend.
Vinneth Bajaj, Associate Project Manager at GlobalData, commented: “Despite Codelco reporting over 3,400 active cases during July 2020, the company achieved 1.2% growth in its production in 2020. The company implemented a four-phase plan, as part of the COVID-19 measures, to ensure the health and safety of its employees, while also avoiding any significant impact to its copper output.”
Although the overall impact was minimal, declines in production were observed from Glencore (8.2%), Antofagasta (4.7%), BHP (3.9%) and Freeport McMoRan (1.3%). Reduced operational workforces due to COVID-19 measures, lower ore grades and production halts due to maintenance were the key disruptors to output during 2020.
The move towards electric vehicles and clean energy from renewables sources such as solar panels and wind turbines has driven the copper price to all-time highs. Copper has been among the best performers over the last month where metals ranging from aluminum to iron ore have surged to their highest prices in years. The rally is being fueled by stimulus measures, near-zero interest rates and signs that economies are recovering from the global pandemic.