Copper price & coronavirus: Don’t expect small SARS-like impact

Upward spiral. Worker repairing machinery in Tangshan, Hebei Province, China. Image: junrong

The copper price continued to recover on Thursday as investors bet on a quick bounce back in economic activity in China once the viral outbreak is brought under control.

After bottoming on Monday below $2.50 a pound, the lowest since May 2017, copper has rebounded by more than 5% to trade as high as $2.6225 a pound ($5,780 a tonne) in New York on Thursday.

In a note, Capital Economics says the gains may be speculative based on some investors’ conviction that the metal was oversold after falling through its 200-day moving average.

But, says the London-based independent researcher, “it is too early to call the bottom”:

If the 2002-03 SARS outbreak is any guide, China’s copper consumption could decline by roughly 500,000 tonnes as a result of the coronavirus.

That would be much larger than the deficit of around 100,000 tonnes we had expected in the copper market this year 

Corona is no SARS

There was little indication on Thursday that Beijing was close to ending the crisis as confirmed cases climbed to 28,060, suspected cases to 24,702 and the death toll topped 564, according to official media.

In a report, commodities research consultants Wood Mackenzie warns that comparisons to SARS may underestimate the impact on copper, which due to its widespread use in industry and construction, is vulnerable to broader economic weakness.

Today China is responsible for roughly half the world’s copper consumption, but in 2003 the country’s share was only 19%.

WoodMac also points out that SARS emerged as a national health emergency in April 2003, when most people had returned to their working cities from the Chinese New Year Holiday, minimizing disruption to industrial activity.

Another reason the current outbreak could have a larger impact is that disruption due to SARS was mainly focused on the Guangdong province and Beijing, but the coronavirus is now spreading to most of the country’s economic centres.