Doctor copper finds COVID cure
The price of copper is signalling a possible turnaround in the global economy as it soared to a two-year high on Wednesday, buoyed by robust Chinese demand and a more upbeat outlook for world output.
Known as Doctor Copper for its ability to predict global activity, the metal has been in high demand as economies look to reboot through big infrastructure and housing investment.
The base metal climbed 1.4 per cent to $US6978 a tonne on the London Metal Exchange on Wednesday, breaking through $US7000 a tonne earlier in the session, and hitting its highest level since June 18, 2018.
"China’s recovery is certainly very strong and other parts of the world aren’t so strong yet, but I think moving into next year, stimulus will be being delivered and being deployed," said NAB head of commodities research, Lachlan Shaw.
"You’d look at those factors and you'd say they’re constructive."
Copper has risen 4.7 per cent in October alone and is up 13.5 per cent year-to-date after recovering from a hefty slump in mid-March.
The prospect of a large US stimulus bill has been supporting the metal's advance, and while the timing of an agreed deal remains highly uncertain, traders appear optimistic a package will secure bipartisan support.
Copper is commonly used in electronics, homes and infrastructure, where fiscal stimulus measures are easily directed.
"I think the demand outlook is pretty solid," said Mr Shaw.
"We’ve had pretty strong housing starts and building permits, and pretty strong stimulus across the globe. The push on renewables continues to accelerate and that will also drive higher copper demand."
"On the demand side, it's been a pretty robust year. China's imports of refined copper are up more than 30 per cent year-on-year and China's production is almost up 11 per cent year-on-year," said Mr Shaw.
He added sales of air conditioners, fridges, appliances, cars and power circuits in the country were up significantly on 2019. "The China demand thematic is very strong and it accounts for about half of global copper demand."
Supply concerns have also been playing a key role in keeping the copper price sustainably high.
Lundin Mining has suspended production at its Candelaria copper mine in Chile after failing to reach a deal with workers over wages, following mediation with the Candelaria AOS Union.
BHP's Escondida mine in Chile narrowly averted a similar strike on Friday, after reaching an agreement with its workers on a new labour deal.
"Clearly supply risks in Chile are proving constructive for the market, with ongoing labour disputes in the country, which follows the COVID-19 related disruptions that we saw in South America earlier in the year," said ING head of commodities strategy Warren Patterson.
"Other more supportive factors include the broader weakness that we are seeing in the US dollar, along with hopes of a US stimulus deal."
Mr Shaw said the labour force issues in Chile were unlikely to abate.
"The fact that both Lundin and BHP’s Escondida workers' unions have rejected offers tells you there's disquiet," he said. "The market’s looking at the prospect of further supply disruptions on labour negotiation issues."
The International Copper and Study Group is expecting global copper mine production to fall 1.5 per cent in 2020, largely because of COVID-19 disruptions.
Mine output is then expected to recover 4.5 per cent in 2021 with new mine expansions coming online.
Mr Shaw said the upgrading of mines and introduction of new projects could yet be delayed by the combined forces of strained labour negotiations and COVID-19 outbreaks through South America.
"Chile and Peru did a really good job of keeping supply coming into the market but those disruptions in the first half increasingly mean supply will be tighter next year," he said.
"Projects get pushed back and as we start looking at those delays, copper supply grows less quickly."