Copper prices surge. But for how long?

Copper prices have surged in recent months as China has ramped up consumption and other countries have followed.

Supplies that were depleted as producers shut down at the onset of the COVID-19 pandemic are also increasing as economies gradually reopen.

As recently as early August, the London Metal Exchange (LME) copper price was more than $6,500 per ton, after increasing by more than 40% since mid-March. It was up by more than 4% for the year.

China leads recovery.

China’s manufacturing sector strengthened for the fifth consecutive month in July, The Economic Times reported, in noting what helped copper prices cover lost ground. The country’s official manufacturing purchasing managers’ index (PMI) increased to 51.1 from 50.9 in June.

China opened the spigot for copper scrap to help meet demand. Recycling Today reported that administrators gave importers permission to bring in more than 175,000 metric tons of copper-scrap on July 6. The previous quota, which was released in mid-June, was for only 1,570 metric tons.

A “perfect storm” in scrap cost the global market 500,000 tons of contained copper supply in the first half of the year, Reuters reported, citing research from analysts at Roskill. Copper scrap accounts for about 35% of the global copper market, analysts estimated.

The International Copper Study Group (ICSG) estimated that 532,000 tons went missing in the first quarter alone, “with a similar-sized hit likely to have occurred in the second quarter as lockdowns led to lower scrap ‘harvests’ and processor countries such as India shut up shop completely,” Reuters reported. 

Production paused by pandemic.

Reuters wrote, “An already fragile scrap supply chain has been devastated by the coronavirus this year. Lower scrap generation owing to price weakness and reduced manufacturing activity has been compounded by locked-down collection and recycling networks and disruption to international shipping logistics.”

A Pennsylvania-based processor told Recycling Today that copper scrap was in short supply. “We’re all going after the same material. There is a squeeze on material and on margins. Margins are out the window in favor of finding material to satisfy consumer needs,” Recycling Today quoted the processor as saying, in its nonferrous market report for August. 

The production of copper slowed or halted as COVID-19 spread across the globe.

“The pandemic caused thousands of workers in the Chilean copper industry to fall ill, resulting in a marked drop in output from Chile, the world’s largest copper producer accounting for over a quarter of global supply,” Resource World Magazine reported in writing about the near to mid-term copper outlook. 

“Many mines in South America reduced their labor force and postponed non-essential activities in an attempt to keep workers safe and as a result the world’s No. 2 producer Peru suffered a 40% fall in output in May.”

Market watchers ponder the sustainability of the increases in copper prices as production resumes. They also wonder if prices would maintain their recent gains if the pandemic worsened, particularly in major markets such as China or the US.

TD Securities projects demand to be lower in 2021 than it was in 2019, Kitco News reported. The news site quoted Bart Melek, head of commodity strategy at TD Securities, as saying, “As the pace of demand growth normalizes amid economic and seasonal drivers, and disrupted supply returns to the market, the red metal could be set to revert lower.”