Copper’s November rally carries into December

Copper ended up in November on something of a high note and continued to rally into the first week of December, supported by a decline in output from the world’s largest producer and a pick-up in demand from China.

Prices rose 4.4% in November, the first rally in five months, and although some of the gains have since been lost, the immediate outlook for copper remains positive.

Copper is trading at just above $8,450 a tonne, with the next support level at $8,200/t and resistance at $8,612/t.

In the short-term copper is set to perform the best of all the base metals thanks to production issues which include problems at First Quantum’s copper mine in Panama, reduced output in Chile and some expected production cuts next year.

Of all the base metals, “we are most constructive on copper as it is bogged down by serious and varied supply disruptions while also being buoyed by strong Chinese demand,” said metals analyst Edward Meir at Commodities Research Group.

Copper output declining

Output in Chile, the world’s largest producer of the metal, declined 4% on the year in October. Going into next year South African miner Anglo American said it will significantly cut output as part of a plan to reduce capital expenditure over the next three years.

Brazil’s Vale also said that its production next year could fall below this year’s level. These cuts will not create a shortage in copper production as the output coming on line in China will more than make up for the shortfall in the rest of the world, but it will definitely dent the surplus that was expected to persist into next year.

On the demand side, imports of concentrate and scrap into China are now both above pre-COVID 2019 levels, while refined imports are just about even with 2019.

“This is quite a stunning state of affairs given the implosion of property-related copper demand. Other sectors of the economy have apparently stepped up to pick up the slack, while we could be seeing some stockpiling. This relatively strong supply/demand backdrop may be why copper is the only metal within the LME group that is up on the year,” said Meir.

The Chinese government said last week that it plans on supporting domestic demand and strengthening macro policies to help the country hit its annual economic growth target of around 5%.

China’s imports of the red metal in all forms of unwrought metal jumped 10% on the month supported by spending from the country’s State Grid and needs from the renewable energy sector.

China plays a crucial part in global copper demand as before the economic downturn the copper consumption from the country’s property sector was higher than the entire copper demand from the US. Now that the Chinese property sector is facing serious financial problems, Chinese copper consumption is unlikely to go back to the days of breakneck speed of growth but the green transition in East Asia will create a new demand driver, albeit a less aggressive one.

Storm building further out on the horizon

While the immediate forecast for copper is of oversupply in 2024 the supply/demand picture later this decade is of a more serious shortfall created by green energy transition requirements.

Electrification to do with transport, energy storage and renewable energy will all need additional amounts of copper on top of the existing production capacity globally.

Green uses of copper had a 4% share in copper consumption in 2020 but are on track to more than quadruple to 17% by 2030, according to a recent note from Goldman Sachs. The bank estimates that a net-zero emissions pathway would create the need for a staggering 54% more copper on top of the existing demand by 2030.

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