Reopening of Chinese economy boosts copper demand
Having started the year at USD 6,200 per tonne, copper price was hammered by coronavirus crisis in 1Q2020. By the end of January, the infection outbreak in China pushed the metal price down to USD 5,500 per tonne, with the price taking the second hit in March declining below USD 4,600 per tonne as the virus spread from China into the rest of the world.
In April, however, copper market started to recover as China emerged from lockdown and restarted its economy. In May-June, the rally accelerated as more stimuli have been unleashed by global central banks supporting the price of risky assets, while manufacturing data from China showed promising signs of broader economic recovery.
In July, copper price increased to USD 6,500 per tonne, levels not seen since April 2019. The average LME copper price in 1H2020 decreased 11% y-o-y to USD 5,500 per tonne. In 1H2020, the underlying market fundamentals were severely impacted by the coronavirus pandemic as the copper market shifted to a moderate surplus.
As manufacturing activities across major economies tumbled to their lowest levels in decades, global copper demand was down 4% y-o-y. China reopened its economy after a 2 months-long strict lockdown, getting its GDP back to a growth trajectory in Q2 (+3.2% y-o-y).
The GDP recovery in China was primarily driven by industrial production and fixed assets investment, all of which were supporting are bound of copper consumption.
June trade statistics provided additional evidence that the Chinese copper demand was recovering, as import of unwrought copper increased 50%, albeit also benefiting from an arbitrage opened between Shanghai and London copper prices, which made it cheaper to import the metal rather than to buy it locally.
Global copper production was equally impacted by the pandemics. February started with Chinese smelters cutting production on the back of COVID-19 containment measures and scarcity of both scrap and concentrate supply.
As the coronavirus hot spot migrated to the Western hemisphere a flurry of mine disruption news from Chile and Peru provided additional tightness to the concentrate market and therefore support to the copper price. Overall, experts estimate that global copper supply was down 3% y-o-y in 1H2020. Exchange stocks in January-June increased by 85 kt reflecting a moderate surplus.
COPPER OUTLOOK
Experts anticipate that copper market will remain largely balanced in the near-term running a marginal surplus of less than 1% (or 210 kt) of the global consumption as coronavirus outbreak will continue to have an equal impact both demand and supply sides.
In spite of an overall positive market sentiment stemming from the gradual recovery of the global economic activity, the outlook for copper end-use demand does not look very promising.
Positive data coming out from China on increasing grid investments, 5G development and durable goods sales are in sharp contrast with a major deterioration in economic conditions in the rest of the world (ex-China demand is estimated below levels seen 15 years ago).
Moreover, the weakness of economic recovery outside China may negatively affect the Chinese demand itself as approximately 20% of its copper consumption is dependent on export markets.
The global copper demand will reduce 3% y-o-y to 22.8 mt in 2020 driven mainly by weak industrial machinery (-7% y-o-y), consumer goods (-5% y-o-y) and construction (-3% y-o-y) industries. At the same time, the COVID-19 related production disruptions in Latin America and uncertainty around scrap availability in China should reduce global copper output 2% to 23.0mt in 2020 (from 23.5mt in 2019).
Experts expect broadly balanced copper market in 2020, with a moderate surplus of 210 kt (representing less than 1% of global demand).
