Copper price soars on China recovery

Resurgent sales in China have helped the price of copper rise 12pc this year. And it’s got further to go, Goldman Sachs predicts.

BHP’s Escondida copper mine in Chile. Pic” Reuters

There have been some obvious winners in the markets during the pandemic. The need for video conferencing during lockdown meant a boom for Zoom’s share price; so, too, that of Netflix, as people sought things to watch at home; and Halfords’ stock rose as its bicycles began to fill up empty roads.

To that list you can add copper. The price of the metal has soared thanks to resurgent sales in China, which is cranking its industrial machine back into action, and plans in other countries to modernise their economies once recovery takes hold. Prices of copper, the use of which spans electric vehicles to telecoms to water pipes, passed $US7000 a tonne last Wednesday, its highest since June 2018, before falling back at the end of the week. Its value has risen by 12 per cent this year.

China, the world’s largest consumer of raw materials, has been key. It has been pouring vast sums of money into new infrastructure projects this year, including green energy projects and electrical grids. President Xi wants his country to be carbon-neutral by 2060, which analysts expect to lead to even more renewable energy projects - for which tonnes of copper will be required.

Further fuelling demand is the strengthening of the yuan, the Chinese currency, which is at its highest level against the dollar since the summer of 2018. That has made copper more affordable for Chinese buyers.

Goldman Sachs expects prices to $US7500 a tonne by next (northern) summer and thinks that they could go even higher depending on the outcome of next week’s US presidential election. According to Nicholas Snowdon, a metals strategist at the bank: “Further support could come from a Biden election victory/Democrat sweep, offering scope for the implementation of Biden’s proposed, substantial, green-focused fiscal spending plans in the United States.”

Joe Biden, the Democratic candidate who is ahead in the polls, has promised to spend $US2 trillion on green energy and infrastructure, including areas such as the charging network for electric vehicles.

Analysts at Jefferies recently picked out a handful of London-listed metals miners, including Anglo American and Antofagasta, as its key stocks to own should Mr Biden win the election. “This scenario would likely lead to higher prices for copper,” they said.

A miner in Peru holds copper concentrate. Picture: Picture: Bloomberg

The copper price has been helped, too, by supply disruptions, with mines having been forced to close because of lockdown rules at the start of the pandemic. Antofagasta, the Chilean copper miner, estimates that only two thirds of its workforce are back at its mines.

Chile itself is the final factor. It is the world’s largest producer of copper, responsible for about 30 per cent of global supply. Civil unrest in the country has affected some mines over the past 18 months and there is a worry that it may return.

Matthew Murphy, an analyst at Barclays, said: “The primary supply risk we see is a return to unrest in copper-producing regions like Peru and Chile. The pandemic has pushed more people into poverty and increased inequality and hence there may be more scope for supply interruptions.”

Miners have already braced themselves for perhaps years of political instability in Chile, which held a constitutional referendum on Sunday which voted overwhelmingly to change the constitution. The process of rewriting the Pinochet-era constitution will be protracted and Chileans will have to vote in a second referendum to approve the new settlement. Analysts predict that in the end miners will have to pay higher taxes, given that many Chileans believe their economic system prioritises private enterprise over social welfare.

The Times