COPPER – Bulletin #3

Price movement – Historical price (November-December 2020)

The Y-Axis represents the price of Copper per Metric Ton.

Source: https://www.lme.com/en-GB/Metals/Non-ferrous/Copper#tabIndex=2 – consulted December 9th 2020

Several factors can explain the increase of Copper’s price over the last month. Starting with the increase in demand due to China’s strong growth manufacture-wise as well as its increase in copper stored related to a possible new stockpiling policy by the Chinese Government. The increase in demand is also explained by the still-low level of US dollar’s value and the global economic and manufacturing bounce back due to hope related to vaccines announcements from several countries.

The decrease in supplied quantities due to sanitary reasons in south America and political tensions in Peru (2nd biggest mining country) which created tensions on the investing side. 

For economical reasons, the crossing between supply and demand in the above-mentioned situation implies an increase in price.

Price movement- Forward Curve

Data source: https://www.cmegroup.com/trading/metals/base/copper.html – consulted December 9th 2020

The graphic shows that the forward curve on the 09.12.2020 is different from the one on the 18.11.2020 and the one from 29.20.2020. The price of the forwards in the 09.12.2020 is higher than the ones before, we can therefore assume that the market is doing better than expected. 

The curve is relatively flat with a small contango. The small contango suggests that the supposition of the market today is that the supply over the year is going to be relatively good. Yet, the fact that it is almost flat suggests that the market is uncertain towards the evolution of Copper’s price and that it can go up as it can go down more or less quickly. 

The uncertainty can be related to different aspects. The first one is that investors fear the coronavirus crisis might worsen and this could result in a shortage of supply, or lower the demand due to the lack of economic activity. But, since the UK started vaccinating people on the 08.12.2020 and many other countries are following, the worries about COVID-19 are lower than before. Observers expect the COVID-19 to ease in the future.

The instability of the dollar index is also affecting the demand and supply of the copper as all the commodities traded on the CME market.

Illustration of supply and demand dynamic of copper

Source: http://www.kitcometals.com/charts/lmewarehouse.html – consulted December 9th 2020

Warehouse stocks level of copper is running low for mainly 2 main reasons:

• The Chinese economy is the only one growing correctly due to a serious control of the COVID19. There is no lockdown anymore and Chinese production/consumption of copper for infrastructure is getting back to the usual level despite a lower supply level than “usual”.
• Markets like Europe are looking to boost their inventories because if a vaccine is found, the sector of renewable energy, electric vehicles and manufacturing will need a reserve of copper.

The supply from countries like Chile are still impacted by the COVID19 and the production did not catch up to the normal level from the previous year. The demand is high due to the recovery of China, the weakening of the US dollar and an expected future economic recovery in the majority of importer’s countries. Both of these factors are driving copper’s price high as we can see on the historical graph and the future’s market price.

Recommendations to be short or long for the next 3 or 6 months

The forward curve on the 09.12.2020, has a small contango yet it’s relatively flat, we would advise going long for the next 6 months. We think that the economic activity will pick up hard after the administration of vaccines all over the world, the administration of vaccines will take months, but after the economic activity picking up, a shortage of copper will appear and that will be the moment to go short and sell what have been bought now. 

Sources

BFM BOURSE, Cac 40: Le cours du cuivre s’envole à un sommet depuis Mars 2013, published December 6th 2020, consulted December 9th 2020, available from: https://www.tradingsat.com/cac-40-FR0003500008/actualites/cac-40-le-cours-du-cuivre-s-envole-a-un-sommet-depuis-mars-2013-943515.html 

MINING JOURNAL, Copper news, published December 2nd 2020, consulted December 9th 2020, available from: https://www.mining-journal.com/copper-news/news/1400534/chile-copper-production-down-in-october 

ECONOMIES.COM, Copper turns lower as investors grow more cautious, published December 3rd 2020, consulted December 9th 2020, available from: https://www.economies.com/commodities/copper-news/copper-turns-lower-as-investors-grow-more-cautious-36967

https://www.economies.com/commodities/copper-news/copper-rises-on-strong-demand-and-falling-dollar-36918

CAPITAL.COM RESEARCH TEAM, Copper price forecast for 2021: moderately bullish with strong headwinds, published October 28th, consulted December 9th 2020, available from: https://capital.com/copper-price-forecast-2021

by Ismail MODAFFAR IDRISSI, Tashi JARRON & Amélia REUSSER