Copper’s stunning rally toward all-time highs above $10,000 is accelerating, with bulls swarming in to profit as stimulus measures, vaccine rollouts and climate pledges fuel a global recovery from the pandemic.
Copper on Tuesday extended gains to the highest in a decade as global growth underpinned a rally in metals markets ranging from aluminum to iron ore. Commodities are advancing toward the highs of the last supercycle, when prices spiked in the early 2000s with a jump in Chinese orders.
Just as copper demand is set to soar once more, there are mounting concerns that producers will struggle to plug the gap as they battle a host of technical and regulatory pressures. In top producer Chile, a group of port workers this week began protests against the government’s pandemic relief policies, threatening near-term supplies. In the longer term, producers worry that plans to boost mining royalties could stifle investment and make the country less competitive.
“While demand may have done as much as it can for the shorter-term cycle, supply bottlenecks both in raw materials and in freight continue to support,” BMO Capital Markets analysts including Colin Hamilton said in an emailed note. “Meanwhile, positive medium-term global growth dynamics continue to boost financial market interest in commodities as a whole.”
Metals led by copper, a barometer of the global economy, are benefiting as the world’s largest economies announce stimulus programs and climate pledges as they rebuild from the coronavirus shock. Investor appetite is increasing, with aggregate open interest in Shanghai Futures Exchange copper contracts at the highest in more than a year.
“Marcoeconomic data continues to point to strong demand conditions for copper,” Vivek Dhar, an analyst with Commonwealth Bank of Australia, wrote in a note, citing industrial output and manufacturing indexes across the globe.
Copper rose as much as 2.2% to $9,965 a ton on London Metal Exchange, the highest level since March 2011, before trading at $9,827 as of 2:38 p.m. in London. Prices hit an all-time high of $10,190 in February 2011. Aluminum in London declined after earlier touching a three-year high.
Despite all the bullishness, near-term copper demand from China may weaken. The top user may ship more of the metal overseas amid weaker-than-expected domestic demand, with the so-called arbitrage window for exports opening up for traders for the first time since September, according to Shanghai Metals Market.
This development “may potentially deter some speculative buying in London in the very short term,” said Wenyu Yao, senior commodities strategist at ING Bank.
Growth of money supply in China is likely to slow down as part of Beijing’s efforts to avoid asset bubbles. That could impact demand for commodities including copper as early as this summer, according to TD Securities analysts led by Bart Melek.
In other markets, gold was steady ahead of a two-day Federal Reserve policy meeting. The central bank has primed investors for no major changes in the bank’s language on inflation and rate expectations.
U.S. gross domestic product data released Thursday will show how the economic recovery fared in the first quarter, potentially impacting investor demand for havens. Economists surveyed by Bloomberg predict an annualized 6.8% expansion, after a moderate 4.3% rate in the first quarter.
Spot gold fell less than 0.1% to $1780.58 an ounce, after gaining 0.2% on Monday. It advanced the two previous weeks. Silver rose while platinum was little changed.
Palladium declined after earlier climbing toward $3,000 an ounce amid bets on surging demand from automakers and supply issues at top miner MMC Norilsk Nickel PJSC. HSBC Holdings Plc said the metal could rise past $3,100 an ounce due to a widening deficit, before dropping to $2,740 by the end of the year.
“High prices will likely encourage the mobilization of largely unquantifiable above ground stocks,” analyst James Steel wrote in a note, while substitution of cheaper platinum in autocatalysts should start to clip demand.