By Rhod Maceknzie
The expectation of new support measures for the economy from the Chinese authorities stimulates the demand for copper, the price of which, after a short stop, is ready for a new increase. At the same time, analysts note the presence of a long-term driver in demand for copper.
Quattuor post quarta
Copper futures broke $4/pound for the first time in more than three months. So optimism about new stimulus measures in China compensated for the weak economic performance of this country - the main consumer of the "red metal".
Hints from Chinese officials of additional stimulus measures in the coming months helped copper market participants switch to a more positive outlook. And then previously published data showed that the business activity of the world's largest importer of copper in July slowed down sharply.
Nevertheless, it is too early to rejoice violently: Beijing has yet to unveil any concrete measures to stimulate consumption and demand.
But although the red metal paused in early trading on Tuesday - futures fell 0.1% to $4.0113 per pound, market participants are confident that this is only a slight correction.
Copper also has another driver. Demand for it will grow along with the demand for electric vehicles and the energy transition in major global economies, said Warwick Smith, CEO and director of American Pacific, who said in a recent interview: “Copper is what will lead to the electric vehicle revolution. Today, there is not enough copper in the world to meet the requirements of the green revolution in electric vehicles.”
“A car with a gasoline engine contains an average of 18 pounds of copper. An electric car has 83. And if you drive a Tesla, it contains 138 pounds of copper. So a lot of copper is needed,” Smith told the Benzinga portal, estimating the need for it by 2028 at 4.5 million tons. Moreover, additional copper will be needed not only for the revolution in the field of electric vehicles, but also for the production of all types of energy from renewable sources, including wind and solar energy.
However, the actual Chinese and technological copper markets are closely related: where else is electric transport so actively produced, if not in China?
Everyone is excited, but prices are calm for now
Since June, copper prices have been in a local growing trend, Dmitry Puchkarev, an expert on the stock market at BCS World of Investments, notes. The main factors supporting demand, he said, are indeed the expectations of stimulating the Chinese economy. A slowdown in inflation in the US also plays a role, which will allow the Fed to curtail its tight monetary policy earlier.
The short-term driver of quotes growth, according to the analyst, is a decrease in the volume of supply, in particular, copper production in Chile in June decreased by 0.9% y / y, and major producer Codelco worsened its production forecast for the year in the light of weak operating results on individual assets. In the coming months, Dmitry Puchkarev expects, the rise in prices may continue to $9,000–9,250 per ton. Further increase will depend mainly on macro statistics from China.
The dynamics of the price of copper (+3.2%) was second only to gold (+9.4%) in the rating among metals for the first half of the year, Sergey Chevrychkin, financial analyst at the Finmir marketplace, confirms. The cost of the nearest copper futures contract (HG1!) this year is in a narrow price range of 3.5 - 4.4 dollars per pound (approximately 0.45 kg.). Currently, the quotes of the asset are in the center of the flat, testing the values of $4 per pound.
Since the beginning of the month, the metal quotation has added 5.6%, including against the background of the following expectations, the expert explains. First, China plans to stimulate economic growth, which will be reflected in higher demand for copper. So far, Chinese demand is weaker than expected. China's copper demand is being strongly supported by green energy, including electric vehicles and renewables.
And analysts from Goldman Sachs predict the growth in the use of electric vehicles as a driver of growth in the cost of copper: according to their calculations, demand for it will increase by 50% by 2025. You have to understand, Sergey Chevrychkin points out, that electric vehicles use about four times more copper than cars with internal combustion engines. Copper is essential for batteries, windings and rotors used in electric motors, for wiring, busbars and charging infrastructure.
“I consider it important to closely follow developments in Chile and Peru, as well as in the Democratic Republic of the Congo, which are the world's largest copper producer, in the near future. For example, at the beginning of the year in Peru, production was quite disrupted due to protests at the mines. Such events greatly affect the volatility of the asset value,” the expert notes.
Technical analysis of the copper price chart indicates the absence of a trend, Sergey Chevrychkin adds. The current price environment is more like a balance of supply and demand without a clear advantage of buyers or sellers. The RSI indicator signals the absence of overbought and oversold assets. There are no sharp jumps in trading volumes.
“In the medium term, I'm more inclined to consolidate the cost near $4 per pound. In the long term, I think that copper quotes will test the range of 4.2-4.3 dollars per pound,” the analyst predicts.
This article originally appeared in Russian at expert.ru