Copper hit levels above $3 a pound for the first time since June 2018 Wednesday, and while the metal slipped back below that level Thursday the fundamentals are still pointing to more gains for the industrial metal.
On the supply side of the equation market participants are seeing copper production in South America severely curtailed due to the coronavirus pandemic. Years of low copper prices have had producers all around the globe allowing their capacity to drop as it didn’t make financial sense to continue mining for the low-priced commodity.
That’s coming at a particularly bad time as Chinese demand has risen dramatically in response to a recovery in the economy there post-COVID. Also contributing to the increased Chinese demand are the stimulus measures that are mostly targeting infrastructure projects. In July alone unwrought copper imports in China rose 81% from the same period the prior year.
Speaking on stimulus measures, the U.S. stimulus measures are also indirectly helping copper prices as all the liquidity has had an impact on the U.S. dollar, causing it to soften versus most rivals. That weaker U.S. dollar helps lift the price of commodities denominated in U.S. dollars, like copper.
Chinese imports are expected to continue at record levels, but in the coming months other economies should begin to fully recover as well, which will raise demand for copper even further. But it could be a year or more until supply catches up, even if producers begin ramping up now, which so far they haven’t shown any inclination to do. So, copper is likely to continue outpacing gold in 2020.