Copper headed for best quarter since 2010

June 30, 2020

With rising demand coming from China and mounting supply concerns in South America copper is poised to have its best quarter since 2010.

Bloomberg reported that stronger-than-expected demand from China has helped push the price of copper up about 20 percent this quarter and prices have climbed above $6,000/t ($6,600/st) for the first time since the start of the COVID-19 pandemic in early 2020.

Demand from China and other larger economies has grown as those economies began to ease lockdowns from the COVID-19 pandemic, however, in South America, where the virus is still spreading, supply has been slowed. While a new wave of infections adds risk to the demand outlook, the market is getting support from global economic stimulus and concern over mine shutdowns. A report Friday showed hedge funds cut bearish bets on U.S. copper futures and options to the lowest since 2018.

“The basis of the copper rally was three-legged,” said Tai Wong, head of metals derivatives trading at BMO Capital Markets. “The Chinese economic recovery, despite clear warning signs, has surprised strongly versus market expectations; COVID-related supply disruption has been growing rapidly; and traders were fairly short copper and were forced to grudgingly cover throughout the quarter and are now finally small long.”

There’s growing risk to mining in top producer Chile given the continued spread of the virus there, Morgan Stanley analysts including Susan Bates said in a June 29 note. The bank estimates global mine-supply losses of 560 kt (620,000 st) this year -- most of that due to COVID-19 -- and sees demand outstripping production amid mined- and scrap-supply disruptions.

The rebound in prices has been a boon to miners. The BI Global Copper Competitive Peers index of 30 companies is set for its best quarter since the data series started in 2005. Freeport-McMoRan Inc., Hindustan Copper Ltd. and Hudbay Minerals Inc. are all up more than 40 percent since the end of March.

Copper has also benefited from “improved risk appetite amid global monetary and fiscal stimulus, and short covering given investors were pretty heavily short heading into the second quarter,” said Ryan McKay, a TD Securities analyst.

 

Related article search: