This post was originally published on this site
Thierry Zoccolan/Agence France-Presse/Getty Images
Copper futures climbed to their highest level more than seven years on Tuesday, buoyed by signs of growing demand for the industrial metal, with global supplies expected to fall short of demand this year despite a dip in copper consumption tied to the pandemic.
The moves mark a full turnaround from earlier this year, when prices touched their lowest since 2016 as economic restrictions, aimed at reducing the spread of COVID-19, reduced demand for the metal.
“China’s improving economic data is powering copper’s recovery,” said Rohan Reddy, analyst at Global X, a provider of global exchange-traded funds, adding that “China accounts for half of global copper demand, meaning the fate of copper is heavily tied to China.”
A private gauge of China’s manufacturing activity hit its highest level in a decade in November thanks to firm demand from domestic and overseas markets. The Caixin China purchasing managers index, which is weighted toward small, private manufacturers, rose to 54.9 in November from 53.6 in October, Caixin Media Co. and research firm IHS Markit said Tuesday.
Meanwhile, China’s official manufacturing PMI, focused more on large, state-owned companies, climbed to its highest level in three years at 52.1 in November from 51.4 in October, according to data released by the National Bureau of Statistics on Monday.
“With another positive Chinese manufacturing PMI reading overnight, the hope for growing Chinese copper demand is revitalized and given specific dates for administering the vaccine, the big picture environment for copper would seem to justify additional new highs for the move,” said analysts at Zaner Metals, in a Tuesday note.
The U.S. COVID-19 vaccine distribution process could begin as soon as the week of Dec. 14, Vice President Mike Pence told the nation’s governors on Monday, according to audio of the conference call obtained by CBS News. On Monday, Moderna Inc. MRNA, -13.70% filed for an emergency-use authorization from the U.S. Food and Drug Administration of its COVID-19 vaccine candidate. A vaccine would help prevent the spread of the virus and could improve the economy and the demand for copper that goes with it.
“The vaccine news is critical, because it puts a potential timeline on when we can expect some sort of return to economic normalcy,” Reddy told MarketWatch. “So we do believe the copper rally is factoring in some of this optimism.”
He pointed out that “the market didn’t have weak fundamentals prior to the pandemic and much of the structure is still in place.” Central banks globally are “injecting a tremendous amount of stimulus and the dollar is weakening,” so even though there has been a big rally in copper, much of the support is “still in place” to drive prices higher.
In the U.S., American manufacturers also expanded in November for a seventh month in a row, but the record coronavirus surge led the Institute for Supply Management’s manufacturing index to fall to 57.5% in November from a 21-month high of 59.3% in the prior month.
“The key is economic re-openings,” said Reddy. “We are seeing this in countries that have handled the COVID-19 pandemic well. Asia & Australia are seeing a significant flattening in the curve, and economic data coming out of those regions is consistently getting stronger. On the flip side, Europe and America are seeing second waves spike and economic data is trending the other direction.”
On Tuesday, March copper futures HGH21, +1.94% HG00, +1.94% rose 5 cents, or 1.4%, to settle at $3.485 a pound after touching a high of $3.5215. Prices for the most-active contract haven’t seen levels this high since March 2013, according to FactSet data. They ended the month of November with a gain of nearly 13%.
Read: Gold prices log biggest daily jump in over 3 weeks
Copper futures had settled around $2.10 a pound in March of this year as the pandemic took hold, the lowest since October 2016.
For copper, the rally is “all about infrastructure, solar and Chinese demand,” John Caruso, senior asset manager at RJO Futures, told MarketWatch. Copper plays a large part in solar-based electrical power production and President-elect Joe Biden has plans to boost U.S. infrastructure that would lead to higher demand for the industrial metal.
Global copper supplies are expected to show a deficit this year. The International Copper Study Group forecasts a refined copper deficit of about 50,000 metric tons in 2020, according to a report it released in October. It had forecast a surplus of 280,000 for this year in its October 2019 report. It said the shift to deficit was mainly due to “higher than anticipated Chinese apparent refined copper usage.”
For 2021, however, it forecasts a surplus of roughly 70,000 metric tons, down from the surplus of 100,000 it forecast at the October 2019 meeting.
Copper prices are likely to go much higher into the first half of 2021, said Caruso. However, prices may have climbed too far and too fast. He expects to see a price correction over the next two weeks back down to $3.30.
