Base metals surged higher early this week, with copper rallying above $ 9,000 a tonne on estimation that increased demand driven by the recovery from the pandemic will spur a historic deficit, putting the economic bellwether on course for a record run of monthly gains. Nickel topped $ 20,000 a tonne.
Copper climbed as much as 4 per cent and is heading for an unprecedented eleventh monthly rise in February. Metals are on tear on expectations that post-crisis demand will outstrip near-term supply. Speculation about a new commodity super-cycle is rife. There is also a growing concern about rising price pressures as the world economy recovers from the pandemic.
The base metal’s revival marks a turnaround from earlier in the month, when copper hit turbulence as investors signaled the need for more details about stimulus measures and on concerns about a softening in Chinese demand. But prices rose during China’s Lunar New Year as factory production was more buoyant than usual. Expectations for a revival in inflation have helped, too
The risk of faster inflation has prompted a selloff in bonds globally, with the benchmark 10-year U.S. Treasury yield jumping to the highest in about a year on Monday. A gauge derived from bond market pricing signals expectations for average inflation of about 2.2 per cent in the U.S. over the next decade.
Goldman Sachs Group Inc. reinforced its bullish copper stance last week, saying that China’s return from the week-long break had triggered another leg higher for prices. The market is facing the largest deficit in a decade this year, with a high risk of scarcity over the coming months, according to the bank.
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.
Three-month copper traded at $9,052.50 a tonne on the LME after hitting $ 9,269.50 a tonne, the highest since 2011. Other metals rose, with LME nickel striking $ 20,110 a tonne, and tin at the highest since 2011.