On January 8, three-month copper futures on the London Metal Exchange rose to an eight-year high of $8,238 per tonne. Although a rebound in the US dollar has taken some of the heat out of the copper price in recent weeks, it enjoyed an explosive first week to the new year as investors seemed optimistic about a sharp recovery in the global economy thanks to the Covid-19 vaccine rollout. 

The highs and lows of copper, 2010-21, LME Copper 3M official



What factors are driving up copper prices? And will they persist through 2021? 
Covid-19 played a greater role in determining copper prices in 2020 than copper fundamentals. Our trading regime model – which measures the influence on price of fundamentals (specific factors affecting exclusively copper) versus macro forces (such as the dollar value, risk-taking appetite, etc.) – shows that fundamental factors accounted for just 37% of the copper price variance at its low point in July 2020. 

In 2021, the risk is that macroeconomic factors will continue to influence prices, creating volatility and uncertainty. Our copper market experts are monitoring the effects of those forces, including Chinese demand and stockpiling, mine and supply chain disruption caused by Covid-19, and the demand- and supply-side implications of the so-called “green” agenda. 

Read on for the highlights of their analysis, and attend the Fastmarkets Copper Seminar to take part in in-depth discussions with our analysts and other industry experts about the future of copper.  

Has copper made a full recovery from Covid-19?
Covid-19 caused widespread shutdowns of copper mines in 2020, disrupting global production. The International Copper Study Group (ICSG) estimates mine production contracted by 1% in the first nine months of 2020. 

This is because mine supply is largely concentrated in Latin America, a region hard-hit by the pandemic. In Peru, for example, mine production dropped by 16.5% year on year over January-September 2020.

Despite temporary shutdowns as a result of Covid-19 prevention measures, we estimate that global refined output grew by 1.5% last year thanks mainly to strong growth in China, where output grew by 2.4%.

Looking ahead, we expect an increase of 2.6% in global refined production in 2021, with the strongest growth in the Americas (+5.4%) – including higher solvent extraction and electrowinning (SX-EW) production and assuming Covid-19 is under control – followed by China (+2.8%), with its continued capacity expansions.

Will China’s outsized influence on prices continue in 2021?
China is heavily reliant on imported copper concentrates and refined copper to meet demand from the manufacturing and infrastructure sectors. Already the world’s biggest importer of copper by far, China’s influence on global copper markets will grow in 2021.
 
Three factors caused Chinese copper imports to exceed market estimations in 2020: the rebound in China’s manufacturing activities after the first wave of the Covid-19 pandemic, a reduction in domestic scrap collection and processing, and the Chinese government’s tight control of scrap imports to reduce pollution from the scrap-processing business. (The Chinese Ministry of Ecology and Environment has since issued new regulations allowing imports of copper scrap that meet its standards.)

In 2021, while China continues to outperform the rest of the world in its economic recovery from the Covid-19 pandemic, demand is expected to remain high. 
To mitigate the risk of future supply disruptions, China’s State Reserve Bureau and some provincial governments are securing – and even stockpiling – strategic supply of copper, according to industry experts at Fastmarkets’ Copper Analysts Panel webinar. Stockpiling is expected to continue even at higher prices.
 
Longer term, China is working toward decreasing its reliance on imports by encouraging investment in local production. New capacity will come online slowly, however, and is unlikely to have an impact on prices in 2021.
 
China also is positioned to have a direct influence on copper prices in 2021. In late 2020, the Shanghai International Energy Exchange (INE) started trading monthly copper futures denominated in renminbi. And China Copper became the head negotiator in the settlement of the 2021 copper concentrate treatment and refining charge (TC/RC) benchmark following years of expansion in copper capacity. 

Learn more about China’s growing influence on global copper markets at the Fastmarkets Copper Seminar on March 11-12.

Will the red metal finally go green? 
The new energy economy is built on copper, a highly conductive metal used in the generation, distribution and storage of electricity. Renewable energy systems use as much as 12 times more copper than fossil-fuel-based systems, according to the Copper Alliance.
 
But for the copper industry, the promise of the green boom has yet to materialize. While electric vehicle (EV) growth and the green economy accelerate, copper capacity growth has only averaged about 1% per year since 2017. Annual growth of 4-5% is needed to meet demand from the automotive and renewables sectors. The challenge will be to get that capacity online and ramped up on schedule. Copper mining is an industry beset with delays and disruptions.
 
The green agenda, while not yet benefiting copper producers’ bottom lines, is finding its way into the boardroom, where environmental, social and corporate governance (ESG)-centric investors pressure miners to raise the standard of operations and reduce emissions. The copper industry is also subject to increasing scrutiny from regulators and policymakers, who aim to reduce the health and environmental risks associated with extraction and processing. 

The supply-side implications are often forgotten amid the hype of EVs and other cutting-edge applications of copper. Higher standards result in a higher cost of supply; tighter environmental regulations can make artisanal and small-scale mining uneconomic. This could disincentivize investment, slowing future capacity growth further and putting upward pressure on prices.

Register to attend the Fastmarkets Copper Seminar on March 11-12 to explore the following: 
  • The role of investors, consumers and policymakers on driving the push for sustainability 
  • The rise of “green” metals and resulting demand for recycled metals 
  • The role of “green stimuli” in recovering from the Covid-19 recession 
Register for free

What’s the price outlook for 2021 and beyond? 
In 2021, Covid-19 and demand from China will continue to have a far greater influence on copper prices than the green agenda. We see a big supply deficit this year while demand and economic activity bounce back from the Covid-19 shock, fuelled by policy support from governments and central banks. 

For prices, we are bullish for the first quarter at least because the momentum, liquidity and risk appetite that has driven the recovery for the past nine months is still there. Some volatility is overdue and may finally emerge after the first quarter.
 
The macro influence on copper prices has decreased significantly since its peak in mid-2020, to currently account for around 40% of the copper price variance, according to our trading regime model. The risk remains that Covid-19 and other black swan events, as well as trade disputes and the green agenda, will create volatility and uncertainty in the longer term. A relative lack of investment in new mine capacity in the past decade could also combine with macro forces to drive up prices beyond 2021.  

At the Fastmarkets Copper Seminar on March 11-12, copper experts Boris Mikanikrezai and Andrew Cole will discuss in more detail our short-term and long-term demand outlook and production forecast, and will share their analysis of the impact of declining copper ore grades on the supply chain.