Copper Market Looking for Support after Significant Post COVID Recovery

Since March 2020 ever since the post COVID stimulus packages were being announced by several major global players in copper dynamics, the copper prices had made a steep recovery of over 40 per cent - the steepest recovery since 2009, before being gripped in the narrow band amidst absence of fresh direction and increased uncertainty in the global economic revival. The rise in metal prices has largely been driven by a fall in supply as rising COVID-19 cases led to the shutdown of many mines. Prices started rising further as demand from China started picking up after the nation started easing lockdown restrictions. As per the latest study by World Bank, the global economy has to learn to survive along with COVID situation as it is not expected to move off the active radar before 2022.  In the recent times, the recovery story of copper has been eye catching as the red metal made up all the lost ground on strong fundamentals. The impressive Bull Run has been supported by stellar recovery in China's economy, mounting strains on supply from key producers and massive stimulus programmes by global central banks. During the pandemic, while China's economy gradually recovered from the pandemic, the virus branched out to over 200 nations hampering the global economic growth. Most countries had announced a nationwide lockdown in an attempt to combat the lethal virus breakout destructing the demand for copper and other industrial metals bring most of the economic activity to a grinding halt. With the acceptance of the fact that one would have to live with COVID for longer than expected, most of the economies are slowly and gradually opening up reviving the economic activity at a steady pace.

The significant development in the Chinese scrap copper demand has supported the copper market in a big way. Copper scrap accounts for a huge chunk of the global copper market. The fragile global scrap supply chain was further disrupted by the pandemic, which raised worries of a possible deficit in the global copper market. The Stimulus measures by global central banks amid gradual recovery in China's economy kept industrial metal prices elevated in the recent times but mounting concerns over the US and China relations is likely to undermine the overall recovery. Copper prices are partly driven by high Chinese demand. Consumption increased 14.9 per cent year over year during the January to June period, up to 12 million MT. Cuts on the supply side may have resulted in temporary fears in the market. Chinese refinery capacity declined in recent months. Summer maintenance, along with concentrate supply tightening due to the pandemic, brought down refined production. Relations between the world's biggest economies the US and China continue to reach a new low in 2020. From issues over China's handling of the coronavirus outbreak to its imposition of a new security law that curbs the rights of Hong Kong citizens, tensions has escalated many folds.

Constriction is supply owing to COVID situations in major mining countries has led to increased support in the prices but from now onwards, supply of all metals is expected to exceed demand in the second half of the year. In the case of some metals, production has been in surplus during the first half of 2020, despite the pandemic as lockdown process is being opened up in phased manner.  Stockpile of the metal in LME warehouses fell to its lowest level since 2005 leading to increased pressure on the supplies which in turn supported the prices. Accordingly, in April-May, copper prices were down as most countries barring China were in lockdown. Taking advantage of this fall, China's refined copper imports hit an all-time high in June and July. During January -July, imports of refined copper totalled 2.5 mln MT, up 33.7 per cent on year. In the current times, the effect of Chinese stimulus is flattening. The government had front-loaded the stimulus package to stave off the economy from a crisis. Most of the large Chinese smelters are back from maintenance shut-down and large availability of scrap could become a headwind for metal prices ahead. Thus the supply of the scrap is likely to dictate the direction of the copper market.

The copper supply as of late September, 2.9 per cent of annual global supply remained suspended due to the pandemic, with Chile and Peru accounting for more than half of the missing 702,000 tonnes of output estimated for 2020. This leaves miners playing catch-up to develop future supplies of the metal as demand was only mildly impacted by the downturn caused by the pandemic. The demand of the copper market continues to paint the robust picture in spite of the short term gloom across the market. In order to meet the rising tide of electrification, as many countries seek to lower their carbon emissions through developing new technologies, promises robust copper demand for years to come. Global copper production would need to rise by between 3 to 6 per cent per annum by 2030 for countries to meet the targets of the Paris Agreement on climate change.  The expansion of existing mines accounts for the majority of new copper production scheduled to come online by 2024, after which new projects will be required to bridge the growing gap. On the demand side the China is likely to continue to dominate the demand side constituting approximately 52% to 53% of global consumption, as the country's expanding power and construction sectors will offer further support to copper demand.

In the short term supply scenario, a labour union at the Candelaria copper mine in Chile rejected a contract offer from Canada's Lundin Mining, raising the possibility of a strike. Mines with combined annual production of about 2.8 million tonnes have labour negotiations in the fourth quarter which include Escondida; the World's largest copper mine. Nonetheless, it is expected that rising mineral production from new mining projects to feed into greater refined production growth, relieving tightness in the market over the coming decade. However, volatility in the short term will primarily stem from the US presidential election which could unnerve some investors depending on the outcome, while the possibility of increased tensions between the US and China ahead of the elections could also weigh on investor sentiment, cooling down the price rally ahead. Copper demand could also be undermined in a worst case scenario where a second wave of coronavirus infections leads to the re-imposition of lockdown measures.
As per the development in Indian market is concerned, the Indian has initiated an anti-dumping probe against imports of copper tubes and pipes from ASEAN members - Malaysia, Thailand and Vietnam - into India. This has kindled hopes of a demand revival for domestic manufacturers of copper tubes. The industry has seen capacity utilisation dwindle to a low of about 18 per cent in the past four-five years. As against the total annual demand of about 85,000 tonnes for copper tubes and pipes and installed capacity of about 82,000 tonnes, imports are to the tune of about 69,000 tonnes - leaving over 80 per cent of the domestic capacities idle.

During the post COVID times, China after new coronavirus cases in the country generally stopped rising. A separate private gauge of manufacturing activity also pointed to a healthy rebound driven in part by government stimulus. The steady pace of economic growth in China during its rebound contrasts with the slowdown is expected to hit the U.S. and Europe, which are grappling with recent rises in coronavirus cases. Copper's close ties to China and manufacturing have helped the industrial metal outpace other commodities such as oil that have been hit harder by the pandemic and are more closely linked to global economic revival.