In This Article:
(Bloomberg Opinion) -- Copper has touched $7,000 per metric ton on the London Metal Exchange, having climbed roughly 60% from a late-March nadir. The industrial metal is trading at levels unseen since 2018 despite a surge in coronavirus infections in Europe and beyond, stockpiles rising off recent lows, and expectations of a surplus in 2021. The reason is China, which is dominating the 24-million-ton per year market like never before thanks to a recovery that is outpacing other economies.
The metal’s rebound from four-year lows in March mirrors the rally in that other gravity-defying asset class, the FANG-powered U.S. stock market. Copper’s rally has exceeded expectations, given that the most pessimistic forecasts for pandemic-related supply disruptions haven’t been borne out. Peru’s production fell in August from a month earlier, hit by worker shortages, but output in Chile, the world’s top exporter, increased. BHP Group-operated Escondida, the Chilean copper mine that’s the world’s largest, avoided a strike last week, even if workers at Lundin Mining Corp.’s far smaller Candelaria downed tools in the country.
China’s industrial production gained momentum to rise a forecast-beating 6.9% in September from a year earlier; excavator demand has jumped, along with car sales. Fiscal stimulus, an imminent five-year plan that will boost clean energy investments, and an expansionary monetary policy are all supporting the recovery. Meanwhile, an appreciating yuan has increased consumers’ purchasing power.
China’s influence is hardly new — or surprising, given it’s the only major economy the International Monetary Fund expects to see expand in 2020. In industrial metals, though, this year has marked a significant increase in its clout. The country now accounts for more than 50% of demand in nickel, steel, copper and aluminum, analysts at BMO Capital Markets say — a level that only Japan has ever come near, and China’s North Asian neighbor peaked at less than 15% of global volumes.
Indeed, China’s dynamics have been enough to put copper back on a rising path after a short-lived drop earlier this month, when U.S. President Donald Trump was diagnosed with coronavirus. That’s partly because inventories are still close to historic lows, making the price more likely to swing on supply hiccups, like Lundin’s disruption. But it also hints at a market watching the macroeconomic signals rather than output specifics, and expecting China, which has already imported more copper than it did in 2019, to keep on spending its way through post-pandemic convalescence.