Why could the pandemic cause a copper concentration?

Factory workers secure large coils of copper tubing that will be wrapped and shipped.

Michael S. Williamson | The Washington Post | fake pictures

The coronavirus pandemic is poised to pave the way for “the copper age,” according to the Eurasia Group’s director of energy, climate and resources, as governments double investments that will increase demand for the red metal.

The product, which is widely seen as a benchmark for the general state of the economy, has suffered a blow during the coronavirus crisis.

Falling demand pushed prices down to the height of the pandemic in March. However, benchmark copper on the London Metal Exchange was trading at around $ 5,909 per metric ton on Tuesday, up 0.5%. That’s close to its five-month high of $ 5,928 reached earlier this month, Reuters reported.

The Eurasia Group’s Henning Gloystein said in a research note on Tuesday that the pandemic is expected to accelerate trends in government-backed environmental investment and digitization, which “heralds an upcoming boom in copper demand.”

“Huge green and digital stimulus programs, especially in Asia and Europe, will create the conditions for a boom in copper demand: electric vehicles, 5G grids, and renewable energy generation require large amounts of red metal” Gloystein said.

He projected that demand for copper could drop as much as 5% in 2020 due to the recession caused by the pandemic. But large-scale fiscal stimulus measures would help boost demand for the metal to pre-crisis levels next year, he said, and traders and miners expect consumption to rebound 4% in 2021.

Analysts at Bank of America raised their price forecast for the metal earlier this month, expecting prices to rise 5.4% in 2020 to $ 5,621 per ton. They kept their projection for 2021 unchanged at $ 6,250 per ton. The forecasts, they said, came down to “notable fiscal stimulus packages” and the expectation that there would be more purchases of raw materials as countries came out of the close.

Analysts at Morgan Stanley also expect the sector to recover quickly to pre-pandemic levels, according to Reuters, with global stimulus measures, Chinese infrastructure spending and supply disruptions expected to boost demand.

Green investments

According to the Eurasia Group note, clean energy and digitization programs were expected to drive average annual copper growth demand by 2.5% this decade, which would likely bring consumption to 30 million tonnes by 2030.

Policy changes in Asia and Europe would play a major role in increasing demand, Gloystein said, and changes in transportation are expected to be the “single biggest driver of copper use.”

“The electric vehicle industry currently accounts for just 1% of copper demand. By 2030, many analysts expect that figure to reach 10%,” he said.

China was expected to invest hundreds of billions of dollars in digitizing its economy over the next decade, Gloystein said, while countries around the world had pledged to make massive investments in green infrastructure and electric vehicles.

“Copper will be a key input for virtually all industries that are now being promoted,” he said. “Welcome to the copper age.”

Political consequences

While Gloystein recognized that nations in the southern hemisphere with large copper mining sectors would be the key beneficiaries of rising copper demand, he noted that China’s influence in the industry could cause it to gain political influence in both Australia and South America.

“The boom in the copper economy will have political implications,” he said. “China’s dominant position as a buyer of the raw material is likely to give it more political influence over the copper mining regions.”

China is the world’s largest single user of refined copper, according to the Eurasia Group, and the country consumed about 13 million tons of the product last year.

Tensions between China and Australia have increased in recent years after the latter excluded Chinese telecommunications giant Huawei from its 5G home networks, supporting the US. USA In claims that the company’s presence in the infrastructure poses risks to national security.

Relations have recently been damaged by the Australian government calling for an investigation into China’s role in the coronavirus outbreak, and by China imposing import tariffs on some Australian products.

While there is some support among Australian lawmakers to recalibrate exports outside of China, Gloystein noted that increased demand for copper could limit the country’s ability to achieve this goal.

Meanwhile, Chinese influence would likely increase in Chile, the world’s largest copper exporter, which participates in the China Belt and Highway trade initiative, he added.

“Chile’s sales to China already represent approximately a third of total exports,” says the note. “Increased copper sales are likely to increase this dependency and expose the country to political pressure from Beijing in many areas, including trade negotiations in the Pacific, the use of Huawei equipment and relations with the United States.”

The same, Gloystein warned, was true for Peru, which exports almost twice as many goods to China as to Europe or the United States.