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Copper resurgence is here to stay

The continuing strength of copper in the metal markets, with knock-on benefits for the scrap sector, is expected to be sustained in the coming decade, according to a new report on the red metal.

The Roskill Consultancy’s study ‘Copper Demand to 2030’ charts the short-term recovery despite the Covid-19 pandemic and also assesses its medium term fundamentals. Recent price levels have been remarkable: on 30 November, the LME copper cash price closed at US$ 7 675 per tonne, the highest level since March 2013.

The ‘unseen hand’

‘Copper has charted an unlikely trajectory through 2020,’ Roskill notes. ‘Initially, prices plunged 27% to a low of US$ 4, 617 per tonne in late March as the global impact of Covid-19 became apparent. But copper prices quickly stabilised and then began to rally, completing a full recovery to above and beyond its January starting point.’

The copper price has rallied 66% in just eight months from its March low, making it the most resilient of the LME base metals.

One of the report’s key conclusions over the pandemic is that the international trade flow in scrap was the most vulnerable component of the market and disruptions remain. ‘Scrap has been described as the “unseen hand” of the copper market and this has never been more true than in 2020,’ the authors say.

‘World shortages of scrap, partly caused by China’s artificially imposed import quota system … forced consumers to replace missing units of scrap with extra volumes of refined cathode, accelerating the speed of the global price recovery.’

China is key

Roskill says reaction of the Chinese market is central to understanding copper prices. In June 2020, Roskill identified a structural shift in Chinese purchases of refined metal. Imports surged by 60% from the January to May monthly average and continued at these levels long after a brief arbitrage window closed.

‘Year-to-date calculations of Chinese apparent consumption of refined copper reveal a startling 14% annual expansion. While stockpiling is undoubtedly a major explanation of this surge, Roskill has identified growing evidence that suggests downstream demand is actually performing much more strongly than anyone could have expected.’

The report suggests scrap replacement, the commissioning of multiple new large-scale wire rod plants, and a vastly accelerated programme of wind farm electrical power generation infrastructure have been amongst the main stimuli.

The researchers note that China will account for 56% of world refined consumption in 2020, having almost completely compensated for the 10% slump in demand in the rest of the world, resulting in a 1-2% decline in global consumption. ‘The world’s refined copper producers have largely been shielded from the worst effects of the Covid-19 recession and will end the year with prices much higher than when it began.’

Roskill predicts that global copper consumption (refined demand and direct use scrap) will grow from a little under 30 million tonnes in 2020 to 38 million tonnes by 2030.

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