Why is Copper at a New Seven-Year High?

Summary

  • Copper prices have now climbed to another new seven-year highs, surpassing the top made last month.
  • The drop in inventory across the globe along with recovery hopes and COVID-19 vaccine rollouts is keeping the price buoyant.
  • One of the world’s largest copper producers – Peru has witnessed a 14.5 per cent decline in mine production during the first ten months of 2020 with a peak decline observed in April-May.
  • Such decline is not just contained to just Peru, rather is unfolding across the globe, propelling prices of the commodity to a new seven-year high.

Copper prices are once again climbing the price ladder swiftly with prices of the commodity now surpassing the previous seven-year high seen in January 2021, thanks to the unfolding Supercycle in the commodity.

To Know More, Do Read: Copper Tops USD 8,000, Commodity Supercycle at Play?

Copper futures (near expiry) has surged to a new seven year high on the London Metal Exchange (LME) with prices now climbing to USD 8,146.50 a tonne. Copper prices have been on a tear since late March 2020 and have gained much of the lost ground.

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The inventory shrink across the globe has been a primary trigger point for the rally in copper, which unfolded in the recently. The COVID-19 related travel restrictions have disturbed the copper supply chain , which coupled with a decent recovery across the global front, is pushing the commodity price up.

Chinese Inventory Drops to Decade Low Ahead of Lunar Holidays

There has been a considerable squeeze in copper inventories across China ahead of the Lunar Holidays seasons, which is typically opposite to what is usually observed ahead of the long week holidays in China.

The inventory shrink ahead of the holiday is a result of high consumption of the commodity across China, where factories and consumers have maintained robust demand over higher operating rates, taking the inventory to almost a decade low.

Apart from a drop in Chinese inventory, the global output of the commodity has also shrunk due to operational challenges faced by many miners over the COVID-19 outbreak.

Global Production Declined 0.5% in First Ten Months of 2020

As per the estimation of the International Copper Study Group (ICSG), the world copper mine production declined by ~ 0.5 per cent in the first ten months of 2020 with the production declining 3.5 per cent in April-May in the wake of temporary mine shutdowns.

Copper Production Across Peru in Trouble

Furthermore, one of the largest copper producers – Peru witnessed a 14.5 per cent decline in mine production during the first ten months of the year 2020 with a 38 per cent decline in April-May window, thanks to stoppages resulting from the COVID-19 pandemic and adverse weather conditions.

Recovery Hopes in Top Economies Propelling Copper Prices

The roll-out of COVID-19 vaccines has been a big relief for the general public and policy maker alike. The vaccine roll-out is anticipated to kick start a path to recovery, keeping the demand for copper afloat. Further, the newsprint across the EV segment is also encouraging. GM recently announced that it would go all electric by 2035. Many auto majors are expected to follow suit.

Read: General Motors to bid adieu to Gasoline and Diesel-powered Vehicles by 2035

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Furthermore, the stimulus hope across the United States is also keeping the bulls optimistic over the copper demand. Copper is considered as the backbone of a strong economy. The United States President is planning to bring a USD 1.9 trillion aid package on the table, which is propelling a rally in many commodities across the global front.

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