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Investor dollars recently raised the industrial metal to a seven-year record of $ 7,520 a ton. But traders, remembering the last big copper rally, when the metal price in 2011 exceeded $ 10,000 a tonne, are ready for new fireworks as the prospects for a global economic recovery fuel inflationary concerns and governments are diverting money towards metal-intensive green stimulus packages.
“We are in an unprecedented situation where more money than ever is looking for what’s been done here,” said Mark Hansen, director of Concord Resources Ltd., a London-based metals trading house. “Copper has not been a ‘green’ investment theme since the market flourished 10 years ago.”
The change is truly extraordinary. The copper market, like almost the entire commodity sector, stagnated for most of the decade. Prices from all-time highs in 2011 fell more than 50% in 2015-2016. And then in 2020, it wasn’t even $ 5,000 a ton.
Mining stocks also fell. Specialty hedge funds that focus on commodities, such as Astenbeck Capital Management LLC and Clive Capital LLP, have largely disappeared or been downsized to their small particle size.
But now commodities are once again gaining favor with investors as the world economy recovers, the dollar weakens and inflation rises. The Bloomberg Commodity Spot Index has risen 43 percent since March.
“We expect inflation to exceed current market expectations given the unprecedented increase in fiscal and monetary policy that we are witnessing,” said Evy Hambro, head of sector and sector investment at BlackRock Inc. in London, who helps manage the 16,000 millions. dollars of assets. “Looking back, stocks related to raw materials and mining have been effective in meeting rising inflation expectations.”
This is true for all commodities, but copper also benefits from more specific factors that make it particularly popular with long-term investors. While many expect oil prices to rebound in the near future as the world returns to normal, their long-term prospects are in doubt as the transition to cleaner energy accelerates. Copper, on the other hand, is likely to benefit from these changes because it is used in electrical wiring.
Goldman Sachs Group Inc., which forecast a new “aggressive structural market” for raw materials this month, says stimulus packages such as China’s new five-year plan, the European Green Treaty and the US president-elect package , Joe Biden, could have similar effects. such as the development of China’s infrastructure at the beginning of this century.
“The world is transforming transportation, energy production, storage and distribution of goods,” said David Lilley, a former copper market enthusiast with his new metals hedge fund Drakewood Capital Management, based in London, which sees returns in the coming years since the fund’s launch. In May.
“Governments around the world support and encourage the transition,” he said. “The effects of the transition to demand for the metal sound optimistic.”
There are also short-term factors that make copper look so attractive. Unlike oil, copper supplies are already restricted because the pandemic has had a lesser impact on demand and China has significantly increased its purchases as prices fall.
China’s imports of refined copper and its products rose 41 percent this year. – this means 1.6 million. tons above the annual German demand. The supply of mines was also limited by the quarantine imposed due to the pandemic.
However, traders increasingly identify investment flows as the main price driver. According to Citigroup Inc., aggressive investment in copper has been the most active since 2014, when the data began to be recorded.
This may mean that the positioning is already stretched. In fact, the bank’s analysts point to copper’s advantage over non-swap metals like manganese and molybdenum as evidence that investors themselves are raising prices.
“As physical indicators outside of China are still weak and there are no signs of a global deficit, we can say that prices have been driven by upward positioning,” Citigroup analysts, including Max Layton, said in a statement. last week.
However, this does not mean that new investment flows cannot raise prices even further. As central banks respond to the pandemic and unleash an unprecedented wave of liquidity in global markets, historical positioning measurement techniques may no longer be adequate.
“The power of the ‘green narrative’ is also important,” says Hansen. “Once these narratives gain traction and copper soon reaches that limit, short-term principles may become irrelevant.”
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