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Commodities Corner: What’s behind copper’s impressive rise?


Just a few weeks into the new year, copper prices have recouped most of what they lost in all of 2022, buoyed by prospects for higher demand from China as it eases Covid-19 restrictions and its economy recovers.

“The macro headwinds that we had in 2022 will become macro tailwinds in 2023,” says Boris Mikanikrezai, head of metals research and strategy at commodity pricing agency Fastmarkets. China is ending its strict zero-Covid policy, and the U.S. is moving from aggressive monetary policy tightening to a “somewhat less hawkish Fed in 2023, on the back of encouraging inflation data,” he says.

Most-active copper futures


posted a nearly 15% loss last year, but prices gained almost 11% this year, as of Jan. 17 — the best year-to-date performance through that date since 1980, according to Dow Jones Market Data. Copper futures traded as high as $4.355 a pound on Jan. 18, the highest since June.

The implications of China’s zero-Covid policy are significant for supply and demand, and therefore prices, says Mikanikrezai. The International Copper Study Group estimates that China’s share of world copper usage was over 55% in 2021.

The end of the zero-Covid policy will be a “great tailwind for copper prices,” says Mikanikrezai. A boost in China’s copper consumption is likely in the months ahead and that’s driving “speculative demand higher.”

Even so, he believes China’s reopening will be “gradual, and the fundamental impact on demand for commodities is most likely to be felt in the second half of this year.”

China began easing its Covid policy in November and lifted most of its remaining measures in December. Following that, China’s consumer price index rose 1.8% in December from a year earlier, on the heels of an expected economic rebound.

Al Chu, lead portfolio manager for the BNY Mellon Natural Resources fund
says China’s zero-Covid policy hasn’t had a meaningful effect on copper supply, and for demand, the “active negative effects have been fairly benign.”

Physical copper supplies globally and in China are “at very low levels, implying healthy supply/demand dynamics,” he says, and China continued to import a large amount of copper throughout 2022. China’s copper concentrate imports totaled 25.27 million metric tons in 2022, a record high, according to Reuters’ records of data from the General Administration of Customs.

Copper has also moved higher on the back of a fall in the U.S. dollar since the start of the year, based on expectations for fewer Federal Reserve interest-rate increases, Mikanikrezai says. Some leading U.S. indicators, such as domestic wage growth, point to a “moderation in the inflation trajectory.” The U.S. generated 223,000 new jobs in December, marking the smallest increase in two years.

Overall, the copper market is in the early stages of a broader commodity cycle, says Chu. That’s driven by cyclical factors such as chronic underinvestment and “Covid demand normalization,” but also secular trends, including what he refers to as a “generational shift” in copper as one of the “most important components of decarbonization [and] energy transition.”

Industry sources indicate that through the end of the decade, the electric vehicle and renewable energy industry is expected to generate an incremental 100 million metric tons in cumulative copper demand, while global supply is in the 300 million metric ton range, he says.

As such “we believe copper and the commodity markets will likely see strength over the coming years,” says Chu.

For this year, the big factors to watch will be Chinese demand, a soft or hard landing for the global economy, supply issues, and further consolidation in mining equities, Chu says.

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