Codelco copper Fundición el Teniente Chile. Credit: Consejo Minero.
Copper prices surged on Wednesday as rising inflation expectations caused by US stimulus, a falling dollar, decreasing rates of coronavirus infections and historically low stocks spurred fresh buying.
On the Comex market, copper for delivery in March advanced 2% to $3.7955 a pound ($8,350 a tonne). If it closes at these levels it would be the highest since March 2012.
“The idea that US stimulus is going to lead to higher inflation has taken hold this week, which is a positive for copper and other commodities used as a hedge against inflation,” Tom Mulqueen, an analyst at Amalgamated Metal Trading told Reuters.
“New coronavirus cases are starting to come down and the dollar is lower,” Mulqueen said.
US president Joe Biden’s $1.9 trillion stimulus plan is expected to boost economic growth and fuel inflation at a pace faster than previously expected.
“We expect high metal prices to continue, with a positive effect on our metal result,” said Roland Harings, CEO of Europe’s largest copper producer Aurubis.
“We anticipate a strong improvement in demand for our products overall,” he said.
While most of Wall Street is gearing up for higher prices, the rally is not without its doubters.
JPMorgan Chase & Co. analysts last month said the current China-driven supercycle has peaked, and Chinese investment growth is set for declines.
“People are generally optimistic for the long-term prospect globally, but it’s a question of when it’s going to really take hold,” portfolio manager at Orion Resource Partners Jon Lamb told Bloomberg.
“It’s clarity on what those initiatives — from the next round of covid relief funding to post covid stimulus infrastructure projects where EVs and renewable energy are going to be big focuses — will look like and the timing will be the catalyst.”
Copper stocks in LME-registered warehouses stand at 74,675 tonnes, close to last September’s 15-year trough.
Low stocks have fuelled concern about availability on the LME market, creating a premium for cash copper over the three-month contract.
“Falling inventories could help to draw bulls back in,” Citigroup analyst Oliver Nugent told Bloomberg. Citigroup sees a likely short-term drop in prices as a buying opportunity.
“The extra kicker you need is those organic moves to a market that’s trading like it’s experiencing really tight fundamentals,” he said.
“Spring is likely to bring a fresh demand boost,” Morgan Stanley analysts Susan Bates and Marius van Straaten told Bloomberg.
“The supply side appears ill-positioned” to meet it, he said.
(With files from Bloomberg and Reuters)