Analysts said that, given current conditions, copper becomes an attractive option for investors, even commenting that it currently acts as a “safe haven asset.”
The constant injection of fiscal stimuli worldwide, the high demand that China has presented, which, contrary to expectations, has not been damaged by the pandemic, and the advances in the immunization process, are the main fundamentals that They explain the bullish rally that the price of copper has presented in recent times.
What’s more, these factors are pushing the red metal to highs not seen in more than eight years. The main export product of our country closed this Wednesday on the London Metal Exchange with a jump of 1.63%, reaching US $ 3.75552 per pound, the highest value since October 5, 2012, when It was trading at USD 3.76436.
Thus, experts indicate that copper registers one of the longest rallies in its history. This is an increase that has been maintained for ten consecutive months – according to Bloomberg – something that was outside all the estimates of analysts.
Indeed, for Juan Carlos Guajardo, executive director of Plusmining, the behavior of copper is quite surprising. “Since 2012 the mining and commodities industry has been facing very difficult times, with low prices, very high costs and tight margins,” he said.
“But what we have seen in recent months, and quite paradoxically, is the opposite, because someone could have imagined that the pandemic would have had a negative impact,” he said.
Given this situation, Gustavo Lagos, professor in the Department of Mining Engineering at the Catholic University, anticipated a profitable future for the red metal, since “it is possible that copper will reach US $ 4 this year, I don’t know by how much. time, but the truth is that with the tight inventories that we currently see this is very possible, because the demand is very strong, and it will increase. ”
In fact, although experts in the field affirm that there was a decrease in the amounts of metal production, the demand managed to adapt to the adversities that the pandemic brought with it.
Guajardo referred to the point, who said that “the expectation is that demand will remain constant, that is, that China – one of the largest buyers of raw materials in the world – will continue to grow strongly.”
Along these lines, he added that “it is expected that there will be a recovery in the rest of the world when the pandemic ends, and how we are ready to begin that with vaccination, which will mean an expectation of a high and synchronized demand in practically all consumer countries of the world”.
Other factors that affect the price of copper
The current economic scenario presents several components that converge and that allow the metal to raise its valuation in the global market.
In financial terms, the arrival of Covid-19 caused the impulse of monetary stimuli of unprecedented dimensions, which for the representative of Plusmining, has very favorable macroeconomic effects for raw materials.
“The first is that there is a prospect of high inflation, in fact, the data from China reveals that we are facing a high inflation rate due to the pandemic. This is compatible with the high prices of raw materials because, unlike other assets They are tangible assets, “he said.
“Therefore, investors consider that metals are a better way to preserve value. This causes the demand for commodities to tilt higher and reinforce its upward trend,” he explained.
It is in this context that economists are attentive to the conclusion of the debate that has taken place in the United States, regarding the stimulus plan of US $ 1.9 trillion proposed by President Joe Biden.
Thus, the project proposes a significant injection of capital, which would promote economic growth and feed inflation.
An issue that was addressed by Lagos, who stated that “monetary stimuli continue, so we are attentive to what happens in the United States. This situation certainly influences the value of the dollar, which is very low, which also enhances the value of copper “.
On the other hand, the development of renewable energies will also influence the price of the red metal. In fact, Lagos pointed out that “this aspect will be very important in the long term and the fact that the Biden government has once again joined the Paris Agreement and establishes a stimulus plan for renewable energies will favor copper, without any doubt” .
And he added that “this situation could set up a relatively long period of high copper prices, and it would be good news for Chile.”
A matter to which Guajardo also referred, who mentioned that “a very strong bet is being made because the recovery of the post-pandemic world is with an emphasis on green energy and decarbonization, and in that, some metals, such as copper, will have an additional demand “.
Copper as a “safe haven”
Analysts agree that, given the current context, raw materials become quite relevant goods.
In fact, Guajardo asserted that “the financial factor is important, since in the face of so much inflation, raw materials, especially metals, become an asset where investors will look for a way to preserve value in this period.”
In relation to this, Lagos defended that today copper is a safe haven asset, since “as there is so much silver available to invest, copper in these minutes becomes an important indicator of the world economy.” And he clarified “it is not always, but for several months it has been an important barometer.”
It is then that, although there is a deficit in the supply of metals such as copper, world conditions create a favorable environment for the value of copper to continue rising. For this reason, it is within the framework of the progress of immunization, the permanence of high demand and the economic recovery, that experts consider it likely that the red metal will reach US $ 4.
Translated with Google Translator