Author: Ruth Smart

The recent fall in the price of copper surprised me, it’s dropped back to where it was in October 2021, while bonded stock level remains steady.

It appears that traders don’t want to be caught holding stock as the world goes into a global recession caused by the recent jump in fuel prices and war between Russia and Ukraine.

Digital trading speeds up changes in commodity prices as algorithms react to negative market sentiment and I expect that the price of copper is entering a period of extreme volatility as trading adjusts to the first negative market since 2020.

Copper is unlikely to fall all the way back to it’s pre Covid price of £5 / kg because of higher energy prices but could easily fall to £6/kg over the coming months.

The LME price of copper has edged higher over the last few weeks to GBP 7.85 / kg while bonded stocks have recovered to 105 kT.

Falling consumer demand due to the recent jump in energy prices and the ongoing Covid issues in China have reduced demand while producers have been able to increase supply. This has led to increased LME stocks but prices are not falling due to higher energy costs causing inflation at levels not seen for decades.

Inflation is unlikely to ease this year due to the continuing war in Ukraine putting pressure on both energy costs and food costs.

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The LME has succeeded at bringing stability to the price of copper, but how long will that be maintained as stock levels continue to drop ?

To what extent is the demand for and price of copper being driven by the Climate summit in the next couple of weeks ? Will there be trillions of dollars of investment pledged to reduce carbon emissions, most of which will require copper, or will the summit degenerate into arguments between developing countries, polluters and investors ?

Until the dust settles from COP26 we are not going to know how much will be invested in cutting CO2 emissions or the timeline. Expect the price of copper to react to each announcement and I hope that the LME will be able to smooth the rate of change.

Copper has been holding around £6.74 / kg since June but over the last couple of weeks bonded stock levels have dropped to 200 kT.

The price of future copper deliveries is increasing and heralding a prospective increase in the price of copper as global logistics remain dire, restricting the ability of copper processors to ship their products to market.

After falling from it’s recent high of £7.4 / kg to under £7 /kg copper is once again increasing in value even though stock levels continue to rise.

Normally I would expect the price to fall as supply exceeds demand but speculators must be convinced that recent reductions in demand are temporary and will resume as soon as Covid disruption in China eases.

The recent lifting of social restrictions in the UK following mass vaccination is an indication that the world’s major economies can now start to open up again, releasing pent up demand. So I expect copper to stay at £7 / kg for the foreseeable future and we are pricing contracts on that basis.

Copper appears to have stabalised at GBP 7 / kg as bonded stocks recover to 131 kT.

Reports from China are that COVID outbreaks are impacting post operations, with imported raw materials not being able to offload and exported goods not being able to be shipped. This is have implications up and down the supply chain and potentially reducing demand from China.

Potential strike action at Antofagasta, ongoing droughts and a mounting maintenance backlog at the copper mines around the world have raised concerns about long term copper supplies, but the current price of copper makes a very good return on investment for the miners and processors to increase production.

I still think that the price of copper will fall back to £6 /kg once the copper producers relax COVID restrictions and ramp up production. How long that will take is anyone’s guess ?