Copper Lead the Path of Recovery in Global Economy

The last few months have been quite subdued as far as the movement in copper market has been concerned. Globally renewable power, communication, construction and transportation sectors are major demand drivers of copper and these sectors are strongly correlated with the health of the underlying economies. Currently the market is experiencing an unusual period in history, where the coronavirus pandemic has unleashed a series of unprecedented events affecting every industry. After the initial period of complete lock down the global market have started evolving for the neo-normal situation where the different participants in the market are reorienting the resources and continuously redefining and redesigning the modes of operation and execution of business processes. Amid the growing push for decoupling and economic distancing, the changing relationship between China and the rest of the world is also expected to change the dynamics of competition and opportunities in the Copper market. Against this backdrop and the changing geopolitical, business and consumer sentiments, the world’s second largest economy will grow at 3.9 per cent over the next couple of years and add approximately 1.2 million MT in terms of addressable market opportunity. Continuous monitoring for emerging signs of a possible new world order post-COVID-19 crisis is a must for aspiring businesses and their astute leaders seeking to find success in the now changing Copper market landscape. Amidst the constricted demand scenario the declining supplies owing to closure of major mines is currently supporting the copper market and this has led to recovery in copper prices by over 37 per cent in the last 4 months.

As per reports, the global copper production in 2020 is expected to decrease year on year to 22.9 million MT from 23.5 million MT, a decline of 2.6 per cent, while demand for the metal is projected to also dip by 5.4 per cent to 22.6 million MT from 23.9 million MT in 2019. In addition to the copper production, the refined copper output is expected to increase to 24.3 million MT, with a demand also increasing by 4.4 per cent to 23.6 million MT from 22.41 million MT.

In the global scenario, copper supply from Chile - Codelco, the country’s largest state-owned mining company saw its overall copper production rise by 2.5 per cent YoY to 131.9 Kilo Ton in June, despite being slightly down from May. Production at the mining giant’s Escondida mine, the world’s largest copper mine, climbed to 105.87 Kilo Ton, the highest since last October. Meanwhile, the world’s second-largest copper mine Collahusai (co-owned by Glencore and Anglo America) saw production surge by 30 per cent YoY in June, whereas Antofagasta has seen mine production from Los Pelambres fall by 11 per cent YoY to 25.8 Kilo Ton. In the Democratic Republic of Congo (DRC), mine production increased by 3.5 per cent as output from ramp-up mines more than offset the temporary closure of the Mutanda mine in December 2019. In Indonesia, production grew by 26 per cent as output levels improved following the transition of the country’s major two copper mines to different ore zones in 2019. Thus, on the aggregate side, the production of copper has shown a marginal decline of about 2.6 per cent. With regards to the refined copper, Chilean electrolytic refined output increased by 36 per cent as in the comparative month of 2019 production was negatively affected by temporary smelter shutdowns whilst undergoing upgrades to comply with new environmental regulations. Total Chilean refined copper production (including Electro-winning) increased by 11per cent. Chinese refined production was negatively impacted by temporary shutdowns related to COVID-19 restrictions, tight scrap supply and constraints associated with oversupply in the sulphuric acid market during the early part of the year and the Indian output is estimated to have declined by 20 per cent over the first four months primarily as a consequence of the suspension of Birla Copper’s operations at the end of March following a national lockdown due to COVID-19.

Prices initially fell up to 10 per cent in January after the outbreak of Covid-19 in China, which was followed by steady prices in the following month and by 15 per cent -20 per cent in March and April as the disease spread, but since then there has been a gradual uplift in the overall trading scenario. Looking at a post-COVID economy, we’re going to be looking at an economy that is largely driven by government stimulus, where government is going to be involved in getting people back to work through infrastructure investment and a reorganization of supply chains. One of the lasting lessons from this pandemic has been the reliance of the Western world on China for its manufacturing. And the idea of getting Americans, Canadians and Europeans back to work will be getting them back into manufacturing, and that’s going to require a lot of copper.We have mines closed throughout Latin America right now because of the virus. Meanwhile, in China, we’re having massive investment being put into copper for infrastructure and really the rest of the world queuing up to do the same.Shipments from South America rose 22 per cent and the first 4 months of 2020 saw imports total 7.58 m/t, a pace that, if sustained, will surpass last year’s record breaking 22 m/t. Demand from China, the world's largest copper importer, for 2020 is projected to decrease to 11.9 million MT from the previous year's 12.2 million MT and is expected to increase to 12.2 million MT by 2021. China, which accounts for roughly half of global copper demand, is certainly doing its bit to encourage bulls. Industrial production rose 4.4 per cent from a year earlier in June and is likely to have accelerated further in July and beyond. Production growth in China is forecast to be around 6 per cent, which is down from the 9.6 per cent forecasted before the outbreak. But, in spite of the above fact, the expected growth in the global construction and automobile sector would continue to support the copper market. Lockdowns in Chile and Peru will reduce the output in two markets that currently account for 40 per cent of the global supply. Overall, the global copper demand is expected to grow by 2.7 per cent versus the 4.1 per cent predicted before the outbreak. Another factor influencing the quick recovery in prices is the disruption to copper scrap trading. Copper scrap trading was particularly affected by the COVID-19 crisis which has led to a shortage of scrap metal.

The major demand is likely to come from the two big sectors ofthe communication sector and the automobile sector with the increased use of 5G and electric vehicles, respectively. Even though 5G is wireless, its deployment involves a lot more fibre and copper cable to connect equipment.Electric vehicles and associated charging infrastructure is likely to consume between 3.1 and 4 million MTrespectively, of net growth by 2035. With each charging station using about 2 kg of copper, that’s 42 million MT, or double the current amount of copper mined in one year.

One important thing to keep in mind is that the copper market is used to supply disruptions like strikes and outages which are annual occurrences. Yet problems are beginning to pile up, against the backdrop of a stronger-than-expected Chinese recovery and limited stockpiles that have magnified the price impact of any hiccups. Global visible inventories have declined 30 per cent since March, which means that the supply is likely to continue as a concern for coming few months.