Thought December 15, 2020 / 09:17 am UTC

Dr Copper Boosted by Stockpiling and Supply Pressures

By Mike Gallagher

The surge in copper prices is consistent with a 2021 recovery in the global economy, but is unlikely to be a pinpoint predictor of growth rates. Stockpiling by China and restricted production in Latin America have amplified the rebound in copper prices, which we see at $9000 by end-2022.

The label Dr Copper has been used for copper prices forward looking view on global growth. It is certainly the case that the sharp rebound in copper prices since the summer are consistent with a global recovery into 2021, as the copper market anticipated that vaccine rollout will boost production (Figure 1).

Figure 1: Copper Prices and China Industrial Production

Source: Continuum Economics, Datastream

Even so, COVID hurt production in Latin American countries in 2020, which should start to ease in 2021. China has also been opportunistic and has been stockpiling copper at cheaper prices. Also China is the largest user of copper globally and its economy has rebounded more swiftly than other major peers. These have combined to amplify the rise in copper prices. We would thus view the rise in copper prices as being broadly consistent with economic recovery rather than providing a forecast for a specific 2021 global GDP growth rate. 

If anything copper prices could have discounted a lot of the near-term good news and in our December Outlook we forecast $8100 by end-2021. However, the medium-term story for copper is bullish, both as new supply is coming online at only a modest pace, while depletion and deterioration in ore grades is a counterbalance to production growth. Demand will move in line with the pace of global recovery, though the electric vehicle revolution will increasingly help actual demand – though the main demand wave will come through in the middle of the decade.

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Analyst Certification
I, Mike Gallagher, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.