Home / Commodities / Commodity News / Stronger demand needed ex-China to sustain copper’s rally: LME Focus Day speakers

Stronger demand needed ex-China to sustain copper’s rally: LME Focus Day speakers

Stronger demand is needed from outside China to hold up copper prices or push them higher, participants at the London Metal Exchange China Focus webinar said Oct. 22.

While a strong Chinese demand recovery has boosted the red metal’s price from its late March COVID-19 doldrums, the sustainability of this recovery is now being questioned, they said.

The LME copper cash price stood at $6,886/mt Oct. 22, down $67/mt from the previous day, but still nearly 50% higher its late-March levels. Some analysts forecast earlier this week it could reach $7,500/mt next year on short supplies, despite signs that China’s economic recovery could now be fading.

“We do acknowledge that recently China’s credit impulse seems to have peaked,” said Citibank commodities strategist Tracy Liao on the Oct. 22 LME panel, noting there has been a recent slight shifting from the country’s earlier monetary easing policy to a more conservative, hawkish monetary stance.

China’s GDP growth is seen slowing to 2.1 % this year, she said. Last year it grew 6.1%, according to World Bank and International Monetary Fund data.

“Apparent demand for copper (in China) rose very strongly for the first eight months on restocking but actually slowed a bit in September with some restocking coming to an end, and maybe we may see some destocking: we also saw State Reserve Bureau stepping in to buy some copper,” Liao said. The SRB “bought a good 300,000 mt cathode from the import market”, she said.

Good news on China already ‘priced in’

Caroline Bain, chief commodities economist from Capital Economics, considered that “the good news about China is pretty much priced into metal markets…. to have another leg-up in (metals) prices we need to see some sort of recovery in the rest of the world which…. could occur only towards the end of next year, when there could be another price recovery as the US and EU economies pick up,” she said.

This year the US economy is set to fall nearly 6% on-year, with falls of close to 10% in France, Spain and the UK, and this is unlikely to lend further support to metals, according to Bain.

“With the second wave of virus infections we think growth in Europe has stalled at a lower level than it was pre-virus,” she said, noting that growing unemployment in the western world will reduce disposable incomes which could impact copper consumption……”and it will take longer for developing nations to bounce back given that they don’t have the fiscal policy support provision that the developed economies have been able to roll out.”

Bain’s sentiment was echoed by Sucden Financial’s Geordie Wilkes. “The strength at the moment is in China: to really cement the recovery we need more from Europe and the US,” Wilkes said. “If we see more restrictions in Europe and going into 2021 we’re looking at softer consumer demand from the Western world.”

The current scenario in the US and Europe means that copper’s recent upwards price trend — which pushed the metal close to $7,000/mt this week — is unlikely to be sustained, he said. The rally had occurred on improving risk appetite in late Q2 and Q3, combined with a tightness of supplies caused by mine restrictions related to the COVID-19 pandemic, and the impact of a weaker dollar, the Sucden analyst said.

China’s next 5-year economic plan, to be announced next year, should nonetheless boost copper-intensive infrastructure developments in China, Wilkes noted.

Construction accounts for 30% of China’s copper consumption and there should also be an upside in metals demand as China proceeds with some aggressive new targets announced for windpower, electric vehicles and energy storage, the analysts said.

Giu Liangmin, deputy managing director of Minmetals UK Ltd., noted that China accounts for 30% of Tesla’s overall EVs production, which he described as “very copper intensive.”
Source: Platts

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping