Fear of food shortages in countries hit by Covid-19 lockdowns has emerged as a factor in a sharply higher copper price.
The copper rush, which started earlier this year, has seen the price of the metal rise by more than 75% from $4500 a ton in late March to $8000/t and while the price has eased slightly in recent trading some analysts see $10,000/t as the target.
Copper is being driven by a combination of tight supply caused by years of under-investment in new mines and strong demand from the Chinese construction sector and manufacturers of household appliances, especially freezers.
What's good for the Christmas goose is good for copper. Photo by Jan Woitas via Getty Images.
Citi, an investment bank, identified the freezer factor in its latest metals sector research which noted how strong copper demand in China had “singlehandedly propelled” the bank’s copper consumption tracking tool to levels normally associated with synchronized global growth.
“We have seen an 80% year-on-year increase in freezer output in China, potentially reflecting Covid-19 related fears over security of food supplies,” Citi said.
“Broader strength in home appliance demand reflects a combination of strong property sales in China and likely increased levels of home renovation outside China.”
The copper rush is also being felt in the share prices of miners with leading copper producers such as New York-listed Freeport-McMoRan rocketing up more than 400% from a low of $4.82 in mid-March to last sales at $24.86.
Copper Is The Red Metal With A Green Tinge
Copper’s use in a number of fast-growing environmentally-focused or “green” industries such as electric vehicles and renewable energy is piling pressure onto the price causing seasoned markets watchers to forecast the start of a commodity “super-cycle”.
Jeff Currie, head of commodities research at Goldman Sachs told the Bloomberg news service that: “We have all the tell-tale signs of a super-cycle”.
Other analysts have noted the impact of government economic stimulus programs in the wake of the Covid-19 pandemic which is boosting demand for copper and a number of other metals.
Copper smelting in Russia. Photo by Marina Lystseva\TASS via Getty Images.
Because copper is seen as an accurate proxy for economic activity, Citi tracks the use of the metal, noting in its latest report that the Chinese tracker had double-digit year-on-year growth in October, rising by 10.3%.
That rise meant the tracker on an annual basis is almost flat having fully recovered from a 20% fall in the first quarter of 2020.
“A surge in air-conditioner, fridges/freezers and appliances appears to have supported changing consumer patterns in key export markets as people spend more time at home and their concerns about food security have risen,” Citi said.
Hot Time In The Freezer Business
“The cooling sector includes refrigerator output that was up 22% year-on-year in November and freezer output up 80%, whereas air-conditioner production which usually dominates this end-use sector was up only 5.5%.”
The bank said Chinese copper demand had lifted global end-use copper to the highest level in almost four years, with more growth expected as other countries follow the Chinese recovery.
Citi’s world ex-China tracker remains well behind the China recovery but activity is improving. The ex-China tracker was down 0.4% year-on-year in October, but that reflected a strong recovery from a 23% decline in May.
