Copper futures topped $4 a pound on Friday for the first time since 2011, with expectations for a global economic recovery and a rise in renewable energy sources lifting the industrial metal’s demand outlook.
Copper demand and prices “should continue to benefit from a recovering global economy and [a] transition to “green” energy sources,” said Brent Cook, an economic geologist and senior adviser for the newsletter Exploration Insights.
Copper for March delivery
rose 16 cents, or 4.1%, to trade at $4.0615 a pound on Comex in Friday dealings, poised for the highest most-active contract settlement since September 2011, according to Dow Jones Market Data. Prices trade over 7% higher for the week and more than 15% higher year to date.
Supplies of the metal suffered on the back of production slowdowns due to COVID-19 restrictions and while supplies should pick up in 2021, said Cook, the market won’t likely have enough copper to meet demand in the years to come.
Estimates for supply increases range between 1.5% and 3.5%, while demand is “projected to significantly exceed supply,” Cook told MarketWatch. He expects the supply deficit to increase over the next five to 10 years “primarily due to a dearth of new copper deposit discoveries, the time line to bring a deposit into production,” which averages 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 issued in January, with preliminary data from October 2020, the International Copper Study Group (ICSG) said world mine production fell by 3.5% in the April to May period last year. It said that the two months were most affected by COVID-19 related global lockdowns that led to temporary mine shutdowns and lower production levels.
ICSG also reported that preliminary data show that world refined copper production rose by 1.5% in the first 10 months of 2020, but estimates for world refined copper usage rose by 2% over that same period, indicating an “apparent deficit” of about 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, said Cook, estimating that an average combustion car incorporates roughly 15 kilograms of copper, but an electric car uses around 60 kilograms of copper.
Still, there are some doubts over whether the economy is set on a track toward recovery, particularly in the U.S.
Recently released data revealed that U.S. industrial production rose a fourth straight month, up 0.9% in January. The New York Fed’s Empire State business conditions index rose 8.6 points to 12.1 in February, the highest level of activity since July.
The Philadelphia Federal Reserve’s gauge of regional business activity, however, moderated in February, falling to 23.1 from 26.5 in the prior month. Also, the first two readings of consumer sentiment this month fell 3.5 points to 76.2 in early February and touched a six-month low, according to an index produced by the University of Michigan.
There is “major disconnect here,” said Christopher Ecclestone, mining strategist at Hallgarten & Company. “I am not seeing a rosy economy.”
He pointed to European economies that bounded back in 1919 to 1921, after the first world war and the Spanish flu due to “pent up demand,” but then “flopped.”
“There will undoubtedly be a flush of demand,” but the question is whether this will be sustained, said Ecclestone.
And with copper prices at such lofty levels, it may signal a short-term pullback 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 be booking gains on the long side.”
Still, he sees a “very bullish economic backdrop for copper,” coupled with an expected infrastructure package out of Washington, D.C. and very strong Chinese demand, so “longer-term supply [and] demand fundamentals are very bullish and could fuel a multiyear rally.”