The reasons behind the rise in the price of copper and how much more could go up

Low inventories, better prospects for the world economy thanks to the vaccination campaigns, and the economic stimulus plan in the United States, have led the commodity to values ​​close to US $ 4 a pound.

With a rise of 2.81%, copper closed on the London Metal Exchange (LME) on Thursday, amid a positive global economic outlook, due to greater control of the Covid-19 pandemic.

Chile’s main commodity and export traded on the international market at US $ 3.92 a pound, compared to US $ 3.81 on Wednesday. This is the highest value for the red metal since February 28, 2012.

Jorge Cantallopts, Director of Studies and Public Policies of the Chilean Copper Commission (Cochilco), highlights that behind this rise is “the successful progress of vaccination processes worldwide”, which has generated expectations of an anticipated economic recovery for this year, and that adds to consistently high copper consumption figures in China. “Additionally, these last days have also been marked by the particular celebration of China’s lunar new year, which was only limited to a couple of days, which contrasts with the weeks of celebration in previous years,” he points out.

His vision is shared by Eric Medel, Market and Industry analyst at the consulting firm Plusmining, for whom the sharp rise in the price of copper that was registered this Thursday is explained “by the return of the Chinese economy to higher levels of activity after the period of festivities of the Lunar New Year, which has happened with unusual force, even being reflected in rises in the stock prices in Asia ”.

The specialist highlights that this occurs “in an already favorable context for the metal, as there are low inventory levels, better prospects for the world economy thanks to vaccination campaigns, the economic stimulus plan in the United States and the consequent weakness of the American currency ”.

Market fundamentals

Daniela Desormeaux, director of studies at Vantaz Group, comments that the price of copper has shown a persistent upward trend since the fourth quarter of 2020, related to the dynamism of the Chinese economy.

As of September last year, China’s industrial production data showed a rapid recovery, which directly impacts the market for raw materials and commodities, she notes.

In the case of copper in particular, she explains that this upward trend has been maintained in 2021, to which other factors are now also being added, such as greater optimism regarding the control of the pandemic given the vaccination plans.

On the other hand, the specialist mentions that there is “a certain lag in the supply of copper (both mine and secondary copper), which has also had an impact on inventory levels, thereby pushing the price up. Other factors that are also influencing have to do with fiscal stimuli in the United States, inflationary pressures and the evolution of the dollar ”.

Along these lines, she asserts that “the fundamentals of the copper market remain solid in the medium-long term, and that they have to do with a cleaner energy matrix, with a greater use of renewable energies and electromobility.”

The psychological barrier of US $ 4

In the current scenario, the concern arises as to whether we are facing a new copper super cycle, and how much more its price could continue to rise.

In Eric Medel’s vision, “in highly volatile contexts, such as the ones we currently live in, it is not easy to identify future prices. Despite that, the technical analysis allows quantifying references for resistance levels in the price around US $ 4.05 and US $ 4.22 per pound, if an upward momentum like the one we are observing is maintained. Additionally, the price of US $ 4.0 per pound is another psychological barrier that would be crucial for the value of the metal ”.

Asked whether it is possible to define a new ceiling for the price of copper, Jorge Cantallopts points out that “it is impossible to anticipate it; Moreover, if analysts were able to agree on a projection of a new ceiling, that same capacity would break it. We are probably going to have upward days that could perfectly break the barrier of US $ 4, but Chile and mining in particular are guided by long-term trends that, although high, are not as high as current levels. ”

Source: Minería Chilena

Translated with Google Translator