Copper price to a 7-month high:
Low stocks and Chinese demand in the second quarter boost the prices of copper to a 7-month high. Indeed, last week, the LME copper price ended at $6,405 its highest since July 2018. This is due to the low inventories, the LME warehouses reached 139,500 tonnes, close to the 10-year low of 122,500 tonnes in December 2018.
The reason the depleting inventory is the seasonally strong demand of China as well as the resolution of the trade dispute. Demand is typically high in the second quarter as the third quarter is the period in where construction activity rises in China.
The global demand is estimated at 24 million tonnes and nearly half of it will be consumed in China. The country is also expected to stimulate its economy using new monetary and fiscal policies. An indicator of the future economic activity in China is the new loans. Loans hit a record of 3.23 trillion yuan ($481 billion) in January as policymakers tried to boost the decreasing investment in the country and prevent the economic slowdown.
Concerning the trade dispute, President Trump said on Tuesday last week that talks with China were doing well and even suggested to extend the deadline of March 1 to complete the negotiation.
Citi is expecting the price to rise to $6,700 a ton over the next 3 to 6 months.
The premium for cash over three-month contracts hit $58 a tonne on Monday which is the highest since October as the market worried about the short-term availability of the commodity, however it now stands around $23.15 a tonne.
Copper’s inventory level at the LME’s warehouses almost reached the historical low end of December. As demand is increasing, the price do so and therefore it is a usual phenomenon that these inventory decrease. Nevertheless, the very low level brings insecurity regarding the supply side, as constructions in China are going to start again in the 3 quarter and big lots are to be order soon.
Indian rise in demand:
The rise of price of copper is also supported (in a smaller extent than China) by the rise of demand in india. Indeed, the Indian’s consumption has been rising significantly over the past decade. In 2018, the annual indian copper consumption was 650’000 tonnes. According to the asian copper conference in Shanghai, the copper demand in india will double by 2026. The Indian’s consumption is expected to rise to 1.433 million tonnes by 2026. India has forecasted its nation refined consumption to hit 843’000 for 2019. This is 200’000 tonnes more than in 2018.
Even more interesting, this assumption is not taking into account the fact that electrical vehicles will become more copper intensive into the future.
To conclude, it seems that nothing suggest that the price of copper will decrease anytime soon. The Chinese continues to increase its demand for copper, especially for this third quarter. Inventories are historically low and no change are forecasted into a near future. India’s copper demand is rising at a rapid paste.
Forward curve
Backwardation: In February, the trend in the 3-month future price shows that there is shortage on the supply side as the spot price is higher than the future price. It is quite a logical fact as the market is bullish (hot). As we can see on the table below (data the 28.02.19), the current cash price was increasing until 6545$ (01.01.19 – 25.02.19) before decreasing a bit to 6470$, and then increase again until 6532$.
