Copper bulls are gaining traction as Democrat Joe Biden appears to be widening his margin of victory over Republican Donald Trump in the US presidential polls, bringing with it the prospect of an economic stimulus package.
Even though it is unclear now how much control the Republicans will have over the senate — which will have to approve any stimulus package — it is unlikely they can deny one from going through.
That as the recent rise in covid infections has seen the daily mark reach around 100,000. The need for a stimulus package to rejuvenate consumer sentiment is being felt more than ever.
Often considered as a barometer of industrial growth, investors have piled on to the metal in anticipation of such a stimulus package, resulting in the metal hovering around the $7,000/ton mark. Despite the prospect of a smaller stimulus package in the US, the market remains buoyed by other fundamentals.
China is aiming to have new energy vehicles account for 20% of total car sales by 2025. Since the nation is the world’s largest producer of new energy vehicles, it is bound to increase demand for copper, nickel as well as other base metals.
ANZ said in a report that they see high value-added metals such as copper and nickel benefiting as China increases electrification of the auto sector, powered by renewable energy.
Refined copper output seen rising
Despite some volatility in the near term due to uncertainty over the impact of renewed lockdowns in Europe, over the longer term the price of the metal seems headed upwards — because of a supply shortage and increasing demand from construction, manufacturing, power and electrical vehicles.
Refined copper output is expected to increase by 4.3% year on year to 24.7 million tonnes by 2021 after a steep fall in production due to pandemic and lockdown which has stumbled the production activities all across the globe. Chile has been the most affected followed by the US and Peru.
However, there could be higher copper production from new mines in Russia, Congo and Chile.
We may witness volatility in the short term till Chinese consumers come back fully to markets and the surge of the second wave of coronavirus in the U.S. and Europe eases and the partial lockdowns being seen currently are wound down.
According to a recent Reuters poll, commodity analysts expect copper price next year to be on average 12% higher than this year.
There are lingering uncertainties as the International Monetary Fund (IMF) recently downgraded the global recovery forecast. It expects the world economy to grow by 5.1% as against the initial forecast of 5.4% next year, although this is higher than the 4.3 % growth estimated for 2020.
The bulls are however, riding on the Chinese demand to grow and increase since China has contained the virus and there isn’t any possibility of new lockdowns. With the growing tension between China and US , the Chinese may start piling copper, which will increase the import demand for the metal.
(Columnist Deepti Suri is an independent wealth manager with a decade’s experience. She has worked with Standard Chartered Bank and Sanctum Wealth Management)