Copper has surged past the US$10,000 per ton mark, hitting a two-year high, amidst growing speculation that global mines will struggle to keep up with the rising demand from green industries. This milestone signals a historic squeeze on the supply of mined ores, leading to concerns about a significant market deficit, while investor optimism about demand continues to rise.
Despite this upward trend, one major concern looms: Chinese demand appears weaker than anticipated. This discrepancy is evident in futures positioning on the London Metal Exchange, where investors are increasingly bullish, yet commercial sales have surged.
However, recent supply challenges coupled with an optimistic global usage outlook are emboldening copper bulls. Companies like BlackRock Inc. and Trafigura Group argue that copper prices will need to rise even further to incentivize the construction of new mines.
The demand for copper is expected to skyrocket in the coming years due to its crucial role in electric vehicles, renewable energy, and expanding power grids. However, the availability of major mines is dwindling, and the cost of building or expanding new ones is escalating.
BHP Group's recent bid for Anglo American Plc underscores the preference among miners to acquire rivals rather than invest in entirely new projects. Colin Hamilton, managing director for commodities research at BMO Capital Markets, notes that the delay in the supply pipeline's response to higher prices reflects the exorbitant cost of construction.
According to Olivia Markham, co-manager of the BlackRock World Mining Fund, copper would need to hit $12,000 a ton to stimulate large-scale investments in new mines and prevent future deficits.
Copper futures on the LME rose by as much as 1.7 per cent to $10,033.50 a ton, marking the highest level since April 2022. The rally in benchmark prices, up 17 per cent this year, was accompanied by gains in all metals on the LME on Friday.
While cautious optimism prevails regarding the global economy, particularly with China's first-quarter growth exceeding expectations, a stark disparity remains between copper's bullish performance in futures markets and the subdued conditions in the Chinese spot market. Despite fading premiums and relatively high inventories, the prolonged discount of spot prices to futures suggests adequate supply.
