Modern Mining April 2023

COMMODITIES OUTLOOK: COPPER

Copper bulls have had a sensational start to 2023 as the metal’s price has rallied 25% from its October-lows, to over US$9 000/t- $4.0/lb. This 12-week sustained lift occurred on the fading of two bearish global macro-policies – the end of China’s strangely severe covid-related lockdown, and the slowing in the US Fed’s aggressive rate hike policy – with some help from mine supply troubles. For now, copper’s price rally has stalled – as the market awaits China’s post-lockdown demand kick. Copper’s prices rally, falter By Tom Price, Head of Commodities Strategy at Liberum

Tom Price: head of commodities strategy at Liberum.

Importance of Fed policy Since March 2022, the US Federal Reserve has been leading most other major central banks worldwide with a sustained lift in rates, to curb inflation. As com modities do not offer buyers and investors a yield, rising rates effectively increase the ‘opportunity cost’ of holding them. Basically, these investors can secure a better return on almost any other US$-asset ex-commodities. In fact, we are now convinced that most of the general decline in commodity prices during 2022 can be attributed to the US Fed’s inflation-targeting cash rate policy – the policy effectively flushed out the speculators of mostly metal markets, including copper. It follows that at year’s end, when the Fed decided to moderate this policy, the speculators returned, knowing that buying commodity exposure carried reduced risk of a rate hike. Mine supply grief Another bullish theme for copper this year has been the series of mining industry’s supply-constraining

China’s recovery vs copper trade Consuming over 12 mtpa of copper (52% of global total), China is the largest national consumer of this metal. Also, over 80% of China’s copper supply is imported – making the trade an important global metal price driver. While 2022’s lockdown in China hit consumption hard, activity in its vast metal-processing industry remained relatively stable. It follows that we should not expect a particularly strong lift in China’s copper import/conversion rates, since they are already close to normal levels now. But what of China’s copper demand? High frequency industry signals for China’s economy indicate a marked lift in China’s credit liquidity, trade flows and production rates – early in 2023. Popular investor view is that this upswing in signals reflects a post-lockdown recovery response. However, it is more likely to be China’s post-winter seasonal restock in play here, and that this is receiving some support from the post-lockdown recovery event. Any substantial growth stimulus would create upside risk to China’s import demand and copper’s global price.

Copper bulls have had a sensational start to 2023.

12  MODERN MINING  April 2023