The copper price reached a record high earlier this year on a combination of rebounding industrial activity in China, the world’s largest consumer, expectations of infrastructure spending in the US and a structural shift in global demand from the green energy transition.
But the price has retreated in recent weeks amid concerns about slowing growth in China and around the world in the wake of rising COVID-19 infections.
Copper is an industrial metal known in the market as “Dr Copper” because it’s considered a reliable indicator of global economic health. What’s this commodity’s outlook for the remainder of 2021 and beyond? And what are the mirain drivers for the international copper markets and key levels to watch?
Read on to find out.
Current copper prices and major value drivers
The copper market has three main centres of activity: the London Metal Exchange (LME), which provides the global benchmark; the Shanghai Futures Exchange (SHFE), which represents the market in China; and the Chicago Mercantile Exchange (CME), which represents the US market.
Copper prices have more than doubled since the lows of March 2020 at the start of the global COVID-19 pandemic, outperforming the S&P 500 (US500) and NASDAQ-100 (US100) stock market indices. The benchmark LME three-month copper price bottomed at $4,626.50 a tonne on 23 March 2020 and reached a record high of $10,720 a tonne on 10 May, data shows. It has since been trading in the $9,000–$10,000 a tonne range.
This makes investing in copper one of the ways to diversify your portfolio and take a position on the performance of the global economy.
Copper is used in a variety of industries, from construction to electrical wiring, telecommunications infrastructure, automotive, gas piping, electronics, marine and machined products. Its extensive uses, particularly in construction and industrial products, are what make it an effective indicator of global economic activity.
China is the largest consumer in the world, importing a record 6.68 million tonnes of unwrought copper and copper products in 2020, up by 34% from 2019, according to data from China Customs. China accounted for 54% of global refined copper consumption in 2020, which was estimated at 23.4 million tonnes.
China is also the world’s largest producer of refined copper, with a 42% share of global output in 2020, or more than 10 million tonnes. That makes economic and industrial activity in China a major driver for the future price of copper.
The impact of the COVID-19 pandemic outside China saw refined copper demand fall by around 9% in 2020.
In the latest copper news, prices fell by the most in two weeks on 16 August 2021, in response to data showing that economic activity in China slowed down more than expected. Chinese industrial production increased by 6.4% year-on-year, according to the National Bureau of Statistics (NBS). That was below consensus estimates of 7.9% and the lowest growth rate in close to a year. That came after data released on 7 August showed China’s imports of unwrought copper and copper products dropped from 762,211 tonnes in July 2020 to 424,280 tonnes in July 2021.
A fresh outbreak of COVID-19 infections in China has resulted in increased restrictions, raising concerns that a further reduction in industrial activity will cut demand for commodities, copper included. Several Chinese ports have been closed in the latest round of restrictions, including the Alashankou port, which is a key location for copper ore and refined copper imports from Kazakhstan.
Monthly manufacturing purchasing managers’ index (PMI) data can have an impact on copper prices as it provides an indication of manufacturing activity. The index for China fell to 50.3 for July, with a number above 50 indicating expansion and below 50 pointing to a contraction in activity. The Institute for Supply Management (ISM) PMI for the US also dropped, declining for a second straight month to 59.3, data showed.
But over the longer term, copper demand is expected to continue rising. Analysts at Goldman Sachs anticipate copper prices will rise with demand outpacing supply as supply of copper concentrate is very tight, especially in China.
The adoption of electric vehicles and renewable energy technologies around the world are creating new sources of demand for copper wiring. For example, a battery electric vehicle uses 83kg of copper, compared with 23kg of copper in a vehicle with an internal combustion engine, according to the Copper Alliance.
Investment bank JP Morgan estimates that the energy transition will increase copper demand threefold by 2030, reaching 15% of total demand. Goldman Sachs estimates that by 2025, the growth in demand will surpass the demand growth from China that was seen during the 2000s, when copper prices quadrupled during the course of a decade – "We estimate that by-mid decade this growth in green demand alone will match, and then quickly surpass, the incremental demand China generated during the 2000s."
Mining and warehouse supply
The supply of copper from mines is also a key price driver. Chile is the world’s largest copper mining country, producing 5.73m tonnes in 2020, according to the Chilean copper commission. That equates to around a third of global copper mine production of over 20.5 million tonnes, according to the International Copper Study Group (ICSG).
Production in Chile has a major impact on copper prices, with signs of lower supply driving the market higher and the prospect of increased supply pulling prices lower. Miners’ strikes over wage negotiations are common, which can often have a bullish effect on the market. The threat of strike action at the Escondida mine owned by BHP Group, the world's largest copper mine, had supported prices in late July and into August. Escondida accounts for around 5% of global production. Workers accepted a deal on 12 August, removing some support from the market, which subsequently traded lower. Strikes continued at the Andina mine, owned by Codelco, and the Caserones mine, owned by JX Nippon.
Chilean production declined in 2020 by 0.9% from 2019, the Cochilco data shows, as lockdowns during the pandemic disrupted operations.
There are ongoing disruptions at Vale, one of the world largest copper mining companies, which has revised its output guidance lower because of a strike and flooding at sites in Canada. Teck Resources had to temporarily suspend operations in Canada because of evacuations caused by wildfires.
And yet the ICSG expects global copper production to recover from the constraints felt in 2020 and grow by 3.5% in 2021, following the ramp-up of recently commissioned mines and the start of larger projects.
Supply of copper from exchange warehouses and government stockpiles can also affect prices.
The Chinese government auctioned copper and other base metals from its strategic reserves in June to cool the price rally, which was driving up manufacturing production costs. Increased supply had the desired effect, pulling prices down from the record levels seen in May. The latest sale was on 29 July but was smaller than had been expected.
More recently the SHFE in China reported a fall in its warehouse stocks to 93,000 tonnes, the lowest level since February. That hinted at stronger copper demand on the Chinese market.
The diverse uses for copper make it a gauge for economic activity. Macroeconomic trends beyond direct copper supply and demand affect market sentiment.
Growth in China’s gross domestic product (GDP), as well as in the US and European Union, along with global trade flows and unemployment rates can all affect copper prices.
For example, copper prices rose in mid-July as Chinese GDP growth came in lower than expected, which raised hopes on the market that the government would provide more economic stimulus in response.
US dollar value
The US dollar’s value has an impact on copper prices because international commodity markets trade in USD. When the value of the dollar falls, commodities become more affordable for buyers using other currencies. And investors tend to buy commodities when the value of the dollar falls as a hedge for their portfolios.
Copper production is an energy-intensive process, so energy prices have an impact on the cost of output. The movement in oil prices reflects the direction of energy costs, which in turn drives copper production costs. Producers tend to raise their prices to recoup the higher costs, driving the copper market up. Conversely, when energy prices fall, lower copper production costs can reduce sales prices.
12 August 2021
“Industrial metals demand broadly looks supported by strong economic recovery and stimulus-driven energy transition. At the same time, various challenges are constraining supply especially for copper. Copper mine supply in Chile, Peru and now in the Democratic Republic of the Congo is at political risk.”
18 August 2021
“Market participants have become more pessimistic regarding copper and the other base metals of late. The spread of coronavirus and therefore concerns about demand have gained the upper hand at the moment. Logistics issues are also playing a role. Supply is being expanded, on the other hand. This can be seen in rising treatment and refining charges that point to higher concentrate production,” analyst Daniel Briesemann told Capital.com.
“In the years to come, we expect a (much) higher copper price because copper is essential in the decarbonisation of the economy, among others. It will also be in huge demand for other future topics like 5G. In a few years’ time supply cannot keep pace with demand and the market looks set to be undersupplied again.”
30 July 2021
“With a finite amount of strategic reserves, policymakers are simply raising right tail price risks, particularly as we expect the bull market to be sustained on a multi-year basis implying a depletion risk on this stock source.”
7 June 2021
“The market is getting cautious with China's retreating in its copper purchases, but the recent weakness in prices has been seen across the industrial metals complex. Much of the market gyrations we have seen in recent markets closely track the broader macro market activities.... The trade-weighted dollar index fell from its recent peak above 93 at the end of March to below 90 at mid-May, during the period copper hit its record. However, since then, the DXY has been broadly caught in a large [range] and slightly grinding higher from the lows seen in May. The caveat could be that there's a bumpier road ahead for copper for the rest of the year.”
13 August 2021
“With the risk of disruptions fading the market could, just like oil, see a period of sideways trading while the current virus outbreak is being brought under control. While resistance has been established above $4.4/lb, support has been equally strong below $4.20/lb. Overall, however, we still see further upside with the price of High-Grade copper eventually reaching $5/lb, but perhaps not until 2022 when continued demand for copper towards the green transformation and infrastructure projects increasingly could leave the market undersupplied.”
13 August 2021
“While peak growth may be in the rearview, the base metals complex continues to receive substantial support from supply-side risks, as pandemic containment strategies have tended to equate to trading frictions. In turn, while shipping giants had expected substantial improvements in reliability standards by 2021Q3, the potential for logistics and freight disruptions to linger far more than anticipated is apparent.”
Analysts at clearing firm and liquidity provider Sucden Financial expect copper supply to increase but demand to rise later in the year: “Smelter maintenance is on the decline now and output will start to recover in the coming months, however, we do not expect the concentrate market to tighten to the same extent as earlier in the year. Supply is improving and will continue to do so for the remainder of 2021, due to new projects and mines increasing production following COVID shutdowns… Consumption of copper is low in the summer months, but we expect demand to improve in Q4 2021, but we expect premiums to increase as buyers make the most of the dip in prices.”
Independent analyst Robin Bhar, of Robin Bhar Metals Consulting (RBMC), told Capital.com: “There’s been three down days in a row of prices falling to the lowest that we’ve seen for a few months. That was triggered by concerns about slowing growth, particularly out of China, which is the biggest consumer. We’ve had some data on industrial production, fixed asset investment, retail sales, they all missed the consensus forecast and were even weaker than expected, so that’s worrying the markets. On top of that the Fed minutes were released suggesting that they’re closer than ever to now tapering their bond purchases, so that was seen as concerning because it reduces liquidity in the financial markets.
“It’s a cocktail of factors. Copper looked a bit overcooked, it needed to be corrected. If you looked at the charts it looked to be defying gravity, so there needed to be a trigger to bring prices down. Once the dust has settled I think we’ll see prices stabilise and then track sideways in the short term, in the next three, four months, and then because the market is running in deficit and stocks are drawing, that should give some support for prices to move back higher again.”
Keep in mind when reading analysts’ reports that they can and do get their predictions wrong. Which analysts you choose to believe is down to your own research and view of market conditions.
Should I buy copper?
There are several reasons why investors opt to gain exposure to copper prices in their portfolios.
Global recovery expected to support prices
The rebound in global economic growth is expected to lift demand for copper across its various applications, especially as governments provide economic stimulus. Infrastructure spending packages, for example in the US and China, are set to increase copper consumption, in turn pushing prices up.
Long-term demand growth
The green transition is considered an important long-term growth driver for the copper market, as it introduces new sources of demand from electric vehicle production and charging infrastructure, as well as renewable energy equipment that could further tighten the supply/demand balance and cause prices to trend higher over the coming years.
Industrial commodities like copper enable investors to diversify their portfolios away from stocks and bonds. Investing in copper acts as a hedge against inflation and low interest rates, as portfolios benefit from the rise in prices that erodes the value of fixed-income assets.
Copper market is highly liquid
With high physical and investment demand, copper is one of the world’s most actively traded commodities, so it can be bought and sold with relative ease when investors look to enter or exit a position. There is always a tight bid-ask spread (the difference between the lowest price a seller is prepared to accept and the highest price a buyer is prepared to pay).
Warning: Whether you buy or sell is your decision. It should be based on the information available from your personal research, your risk appetite, the spread of your portfolio and any hedging you have in place, taking into account how much you are prepared to put at risk.
Should I sell copper?
Rising COVID-19 cases could dampen demand growth
While the copper market has rallied in 2021 on expectations of rising demand, a resurgence in COVID-19 infections, especially in China, could have an impact on industrial activity. That could weigh on prices, pulling them further from the highs.
Large swings in value
As with other commodities, the copper market is highly volatile, so may not be suitable for investors looking for stability in their portfolio. While price swings create opportunities for traders and investors to make large profits, they also increase the risk of large losses.
Government policies and labour disputes affect the market
As an important gauge of the global economy, the copper market is affected by government policies from economic stimulus to taxation on mining output. The Democratic Republic of Congo is a major producer and political instability has been known to have an impact on prices. In Chile, the world’s biggest producer, labour disputes can result in strikes that halt production and drive up prices, and then agreements in negotiations push prices back down.
Warning: Whether you should buy or sell is your decision, based on the information available from your personal research, your risk appetite, the spread of your portfolio and any hedging you have in place, taking into account how much you are prepared to put at risk.
Major copper producers
The world’s largest copper producer is Codelco in Chile, followed by Switzerland-based Glencore, with Freeport McMoRan in the US rounding out the top three.
Major copper traders
In 2020, Swiss commodities trading company Trafigura overtook rival trading firm and copper producer Glencore to become the world's largest copper trading company.
Trafigura has a bullish outlook for the copper market. Kostas Bintas, the “King of copper trading”, told the FT: “Capacity utilisation rates of our customers are the highest in a decade and that’s before stimulus money both in Europe and the US has started to flow.
UK and Switzerland-based Glencore (GLEN) is one of the world’s biggest copper mining companies and the second largest trader. In 2020, it produced 1.26 million tonnes of copper across Africa, Australia and Latin America, and sold 3.4 million tonnes through its trading business.
The company says the copper price must rise further to spur the investment in new mining production needed to meet growing demand. Outgoing chief executive officer Ivan Glasenberg told the FT in May: “You will need $15,000 copper to encourage a lot of this more difficult investment.”
State-owned Minmetals is China’s largest metals and minerals group, both mining and trading copper. The company has one of the world’s largest reserves of copper and its copper operations increased by 15% in 2020.
Japanese trading company Sumitomo (8053) has been supplying copper since the 17th century. It handles around 30% of the copper concentrate imported into Japan. The company is invested in six copper mines, including Morenci in the US and Cerro Verde in Peru.
During the 1990s it was involved in a major scandal as a rogue trader lost the company $1.6bn in unauthorised copper trades.
Historic copper price movement
Copper has been a traded commodity for centuries. In the late 18th century, demand for the metal soared as Britain’s Royal Navy opted to use copper for sheathing the bottom of its entire fleet of ships. That pushed up prices to what remains a record high in real terms of £20,470 a tonne. The increase in demand encouraged the development of mining operations abroad, particularly in Chile, which became the world's largest producer. The rise in production pushed prices back down by the early 19th century.
Copper price history shows that the market climbed again during periods of war, as well as during the 1970s oil crisis, which drove up energy and production costs.
The copper price graph shows that prices quadrupled during the 2000s, as commodities markets rallied in response to China’s rapid industrialisation and urbanisation. However, the commodities boom came to a halt in 2008, at the height of the global financial crisis. Copper demand rebounded in 2010. The market reached a record high in February 2011, driven by the global economic recovery and low stockpiles.
But prices retreated as global manufacturing activity contracted and the copper market was oversupplied by the middle of the decade. While expectations of rising global demand growth lifted prospects for the market heading into 2018, it turned bearish as trade wars – notably between the US and China – dampened the copper outlook. The market remained in a downtrend until it bottomed in March 2020 at its lowest level since 2016.
Copper prices have rallied strongly since March 2020 lows, reaching a record high on 10 May 2021. Copper continued to trade at an elevated level on expectations of a global economic recovery and rising consumption, thanks to the green energy transition.
Keep in mind when investing in financial assets such as copper, past performance is no guarantee of future returns.
Copper has been mined and traded around the world for millennia. The Copper Age from around 4,500BC saw the metal being used for tools. It’s been a basic commodity ever since.
Copper is classed as a base metal because it’s more common in the earth’s crust and mined in larger quantities than precious metals, like gold and silver. Other base metals include aluminium, lead, nickel, tin and zinc.
Copper is a key industrial metal used in a range of sectors because it’s a good conductor of electricity. Copper trading is not only a way for industrial users to buy the metal, but also a way for investors to take a position on the prospects for global industrial activity.
Investing in copper offers portfolio diversification as rising prices can offer a hedge against inflation. The metal is considered to be an important gauge of global economic activity.
Demand from the transition to electric vehicles is anticipated to become a major price driver in the coming years, as electric cars, trucks and buses have much higher copper content than vehicles run on fossil fuel. Renewable energy equipment, like solar panels and wind turbines, also use copper components and wiring.
How to trade copper with CFDs on Capital.com
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Copper Spot CFD
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Analysts and traders expect copper prices to rise over the long-term as demand recovers from disruptions during the COVID-19 pandemic, and new applications for electrification and renewable generation increase the metal’s use. But in the short-term, copper prices could come under pressure from rising COVID-19 infections in some parts of the world, if they disrupt demand.
Like other commodities, copper is considered a useful hedge in a diversified portfolio. However, some investors are wary of the volatility on the copper market and the impact of geopolitical and social factors like government policies and labour disputes. Whether copper is a good investment for you depends on your personal financial circumstances, asset allocation and risk tolerance.