Copper Supply at Critical Levels, Solid Price Outlook13 Sep 2020 17:32
Copper has well and truly recovered from its COVID-related price scare during March. China has been doing the heavy lifting in terms of demand recovery, incentivized through Government stimulus. There are strong parallels now to the extremely strong post-GFC environment that saw copper prices outperform.
Bloomberg has highlighted the fact that “the global copper market could be on the cusp of a historic supply squeeze as Chinese demand runs red hot and exchange inventories plunge to their lowest levels in more than a decade.”
The 24 million ton-per-year copper market has experienced bouts of tightness ever since the early days of China’s industrial expansion, but China’s rampant appetite after emerging from coronavirus lockdown could be ushering in a period of chronic undersupply. As evidence, China’s Caixin manufacturing purchasing managers’ index for August reached its highest reading since January 2011, with copper usage surging.
Citigroup is highly bullish on copper, arguing that a price of $8,000 is plausible if global stockpiles drop to near the levels seen in 2011, when copper reached a record $10,190 a ton.
Evidence of a looming supply squeeze is mounting on the London Metal Exchange, where inventories are at their lowest levels in almost 15 years – only enough to last users a little more than a day. By comparison, a year ago they would have lasted five.
In the past, copper stored elsewhere in the global supply chain was diverted to the exchange’s storage depots. But now there are signs the metal may not flow back to the bourse so freely, given the strength of Chinese demand.
LME data shows there were about 120,000 tons of copper stored privately in Europe at the end of June, but none has materialized on the exchange, even with the region’s lackluster economic recovery. At the same time, the LME’s Asian depots are virtually empty. There are about 80,000 tons in Comex depots in the U.S., but manufacturing in the world’s top economy also is starting to snap back strongly.
Consumers and traders may be more reluctant to offload excess inventories out of fear that a fresh wave of coronavirus infections could reimpose havoc on supply chains. Trafigura, the world’s top copper trader, commented in June that the desire to bolster reserves of raw materials was one factor driving the rapid rebound in orders as China emerged from lockdown
https://www.theassay.com/articles/copper-supply-at-critical-levels-solid-price-outlook/
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