There are two strong fundamentals behind copper prices, say Julien Garran and Angus Staines of UBS. One is “the structural shift from developed to emerging markets as the dominant contributor to global growth”. With emerging markets being far more intensive users than developed ones, demand for the metal has been growing twice as fast as it did in the 1990s. The other is supply constraints: there are “very long lead times to get new greenfield projects to completion and rising costs along the way”.
But in the short term, copper is very sensitive to swings in economic activity, as well as speculative demand. And in the last year, that’s sent it on a wild ride, from $10,000/tonne to under $7,000 and back to $8,000 again. So what’s the more immediate outlook?
Restocking by Chinese buyers will be crucial to stronger prices, says UBS. And there are signs of that, with the country’s refined-copper imports at a 16-month high, says Barclays Capital. Meanwhile, supply is tightening, with an ongoing strike at the world’s second-largest copper mine. Overall, among base metals “copper stands out for its bullish fundamentals”. However, don’t bank on copper prices holding up if global growth slides sharply, says Capital Economics. Back in 2008, prices plunged to under $3,000. Tight supply “was irrelevant then and may well prove to be so again”.