On Monday in New York, copper for delivery in March closed the day near its highs of $2.8640 a pound ($6,314 a tonne), an 8-month high and up 3% from 2019’s closing level.
The US Treasury on Monday lifted China’s designation as a currency manipulator, paving the way for the signing on Wednesday of a phase-one trade deal with China.
China consumes half the world’s copper, and the dispute with the US has weighed on the market for more than a year. Given its widespread use in industry, construction, transport and power distribution, the metal is sensitive to broader economic conditions.
We are drawing ever closer to the point when such projects will be delivered, and thus the current copper deficit is running out of time to yield significantly higher prices.
BMO Capital Markets – 2020 industrial Metals outlook
Bloomberg reports inventories at warehouses tracked by the three international exchanges – New York, Shanghai and London – have shrunk by about 37% since July to just shy of 300,000 tonnes, equivalent to just 1.2% of global consumption.
“Europe and developed Asia have been destocking pretty aggressively over the past six months or so,” Colin Hamilton, an analyst at BMO Capital Markets, told Bloomberg. “You can’t do that forever.”
Chinese imports of copper concentrate shot up last year with January–November volumes reaching 20.1 million tonnes, a gain of just over 10% compared to the first 11 months of 2018 and already above the record set in 2018.
In it’s 2020 outlook, BMO said long-term fundamentals of the copper market “remain intact”:
We still see potential for low- to medium-single-digit growth in demand, helped by increased penetration in areas such as renewable energy and electric vehicles, while the supply side still faces major secular challenges and has a great tendency to disappoint. Moreover, with new assets generally dilutive to the existing asset base, the cost curve continues to steepen over time.
However, miners do like building copper projects, and there are a number of them in the pipeline, which will have to be absorbed. We are drawing ever closer to the point when such projects will be delivered, and thus the current copper deficit is running out of time to yield significantly higher prices.
BMO’s long term price for copper is $3.25 a pound or $7,165 per tonne. The investment bank also warns that substitution (new aluminium alloys targeting market share in voltage cables) and optimism over long term prices driving further project approvals could limit the tailwinds for the copper market.