Copper futures reached $ 4 a pound on Friday for the first time since 2011, with expectations of a global economic recovery and an increase in renewable energy sources raising the prospect of industrial metal demand.
Copper demand and prices “must continue to benefit from a recovering global economy and [a] transition to “green” energy sources, ”said Brent Cook, an economic geologist and senior consultant with Exploration Insights.
Copper for March delivery HGH21,
HG00,
rose 17 cents, or 4.4%, to close at $ 4,074 a pound at Comex on Friday, the largest most active contract deal since September 2011, according to Dow Jones Market Data. Prices ended almost 7.6% higher in the week and almost 16% higher in the accumulated result for the year.
The supply of the metal suffered from a slowdown in production due to restrictions on COVID-19, and although supply is expected to recover in 2021, Cook said, the market is unlikely to have enough copper to meet demand in the coming years.
Estimates of increased supply vary between 1.5% and 3.5%, while demand is “projected to significantly exceed supply,” Cook told MarketWatch. He expects the supply deficit to widen over the next five to 10 years “mainly due to the scarcity of new discoveries of copper deposits, the timeline for putting a deposit into production,” which is an average of 10 to 20 years for a large deposit, and the fact that “most of the major deposits currently in production are in their ‘golden years’.”
In a report released in January, with preliminary data for October 2020, the International Copper Study Group (ICSG) said global mine production fell 3.5% from April to May last year. He said the two months were the most affected by global blockades related to COVID-19 that led to the temporary closure of the mine and lower levels of production.
The ICSG also reported that preliminary data shows that world production of refined copper increased by 1.5% in the first 10 months of 2020, but estimates for worldwide use of refined copper increased by 2% in the same period, indicating an “apparent deficit” around 480,000 metric tons due to strong Chinese demand.
The need for copper in so-called “green” energy sources also comes into play for the market, Cook said, estimating that an average combustion car incorporates about 15 kilograms of copper, but an electric car uses about 60 kilograms of copper.
Still, there are doubts whether the economy is heading for a recovery, especially in the United States.
Data released recently revealed that US industrial production grew for the fourth consecutive month, up 0.9% in January. The New York Fed’s Empire State business condition index rose 8.6 points to 12.1 in February, the highest level of activity since July.
The Philadelphia Federal Reserve’s regional business activity indicator, however, moderated in February, dropping from 26.5 to 23.1 in the previous month. In addition, the first two readings of consumer sentiment this month fell 3.5 points to 76.2 in early February and hit a six-month low, according to an index produced by the University of Michigan.
There is a “big disconnect here,” said Christopher Ecclestone, mining strategist at Hallgarten & Company. “I am not seeing an optimistic economy.”
He pointed to European economies that retreated in 1919 to 1921, after the first world war and the Spanish flu due to “pent-up demand”, but later “failed”.
“There will undoubtedly be a wave of demand,” but the question is whether it will be sustained, said Ecclestone.
And with copper prices at such high levels, this could signal a short-term downturn in prices.
John Caruso, senior asset manager at RJO Futures, told MarketWatch that copper in the $ 4 to $ 4.20 range was a “target zone for us, so it’s a great day to record gains on the long side” .
Still, he sees a “very optimistic economic scenario for copper”, along with an expected infrastructure package from Washington, DC and very strong Chinese demand, therefore “long-term supply. [and] demand fundamentals are very optimistic and could fuel a multi-year high. “