Type to search

Copper tops $9,000 amid tightening supply

China copper

(ATF) Copper rose above $9,000 a tonne for the first time since 2011 and approached a new record on Monday February 22 on the back of underlying Chinese demand and speculative buying on the Shanghai Futures Exchange.

Copper futures trading volume on the Shanghai Futures Exchange has jumped sharply since the end of the Chinese lunar new year holiday.

This has helped copper push above $9,000 a metric tonne for the first time in nine years, taking another step closer to an all-time high set in 2011 as investors bet that supply tightness will increase as the world recovers from the Covid-19 pandemic.

Copper is surging amid a broad rally in commodities from iron ore to nickel, while oil has gained more than 20% this year. The bellwether industrial metal has doubled since a low last March, boosted by rapidly tightening physical markets, prospects for rebounding economic growth and the expectation that an era of low inflation in key economies may be ending.

Investors are also piling into copper on a bet that demand will surge in the coming years as governments unleash unprecedented stimulus measures targeting renewable energy and electric-vehicle infrastructure, which will require huge volumes of the raw material.

In some areas of the physical copper market, supply conditions are the tightest in years and may come under even more pressure as smelters in top consumer China face shrinking profit margins for processing raw ore into refined metal. Copper treatment charges, an indicator of refining margins, are at $45.50 a ton, the lowest since 2012. One leading supplier is considering cutting output, in a potential blow to buyers.

Boost for miners

Surging prices are a boost for mining companies, driving up stock prices. Jiangxi Copper, China’s top producer, gained as much as 20% in Hong Kong trading to reach the highest level since 2012.

With inflation expectations increasing around the world, the sharp rally in commodities including copper could soon start filtering into the price of end-use goods, raising costs for governments with big infrastructure spending plans.

The risk of faster inflation has prompted a selloff in bonds globally, with the benchmark 10-year US Treasury yield jumping to the highest level in about a year on Monday of 1.37%. The gap between 5-year and 30-year yields reached the widest since October 2014, moving past another historic level on signs of strength in the reflation trade.

Lower real returns in the bond markets could drive further inflows into copper, creating an inflation feedback loop and demand for hard assets as prices rise.

There are already signs of emerging tightness on the London Metal Exchange, as spot contracts trade at a premium to futures. That pattern, known as backwardation, was a feature of the market during a record-breaking boom in Chinese demand last year, and suggests that spot demand is once again outpacing supply as exchange inventories run low.

Copper for delivery in three months rose 2.1% to settle at $9,097 a ton in London after touching $9,269.50, the highest since 2011. The metal is on pace for an unprecedented 11th straight monthly gain. The current price record of $10,190 was reached in February 2011.

In China, the SHFE contract hit daily trading limits.

In related news, China will speed up recycling and utilisation of renewable resources such as metals scrap in an effort to build low-carbon development and meet its carbon neutrality goal, its State Council said on Monday.

The State Council, China’s cabinet, urged local governments and related authorities to improve recycling system of waste and used home appliances and to establish a recycling system to increase utilisation and output rates of renewable resources such as scrap metals and plastics.

China allowed imports of high-grade copper and aluminium scrap in November 2020 and gave approval for high-grade steel scrap imports starting in 2021 to meet robust demand for the materials.


Jon Macaskill

Jon Macaskill has over 25 years experience covering financial markets from New York and London. He won the State Street press award for 'Best Editorial Comment' in 2016


AF China Bond