Copper’s long-term bullish potential remains

Dr. Copper, used in everything from wiring and electronics to electrical vehicles, and as such a good indicator of global growth and activity remains the go to industrial metals from investors and speculators seeking exposure to the sector. In addition, the ease of access to trading copper around the world, together with its relative deep pool of liquidity at the three main exchanges in New York, London and Shanghai, often sees the price of copper, not only react to copper fundamentals but also global economic developments.

Expected to be the future king of the so-called “green” transformation metals together with the fear of inflation, especially during the first few months of 2020, helped attract investment interest from speculators and investors. The buying culminated in May when the price surged to a record  $10750/t on LME and $4.89/lb in New York, just before China announced measures to curb commodity prices in order to address surging factory gate costs.

On top of these measures to curb prices and speculative interest, copper also felt the impact of growth starting to cool into the third quarter as stimulus spending and the re-opening-fueled burst of activity slowed in both the US and China. Third quarter growth in the US has been revised sharply lower with one US bank calling for zero growth while another has halved its forecast from 6.5% to 2.9%. According the Citigroup economic surprise index, recent data from around the world has in general been trailing expectations, thereby supporting the view, that growth may be slowing while inflation still looks anything but transitory.

Again, with copper being the go-to metal for many so-called “paper” investors, it has suffered accordingly with speculators in HG copper having cut their net-long position by 65% since the February peak. However, having rallied by 148% from the 2020 pandemic low to the May 2021 high, the relatively small 18% correction seen since then highlights a market which in our opinion looks relatively cheap relative to the outlook for future demand growth.

China went through a destocking cycle during the first half and as they start to rebuild the call on LME monitored stocks may rise, thereby creating a more visible deficit. This at a time where demand in China remains relatively robust, and the rest of the world continues to move the agenda towards environmental friendly policies. Elevated demand expectations, especially from the push to electrify the transportation sector together with an absence of new mine investment is likely over the coming years to push the market into a deep and price supportive deficit.