Roskill’s first copper webinar featured presentations from Neal Brewster (Manager, Strategic Consulting) and Jonathan Barnes (Associate Consultant, Copper) with an introduction and Q&A session chaired by Jack Bedder (Director, Research & Business Development). The presentation drilled down into the reasons behind the recent rapid copper price recovery and pulls out some surprising consequences.
China is the driver in the copper market. GDP in the country fell by 9.8% q-o-q in Q1 but rebounded 11.5% in Q2 and is already back above pre-COVID-19 levels. Although lagging retail sales provide some hesitation in thinking that the pace of the recent recovery in industrial production can be sustained, the consensus view is that output in the country will return close to its pre-COVID-19 trend line by early next year. Roskill’s macroeconomic view is for Chinese GDP growth of 1.0-2.5% this year and for the world economy to shrink by 3.1-4.6%. A strong recovery is expected in 2021 output and the world economy is expected to remain 2-5% below its pre-COVID-19 trend line.
A unique blend of market conditions and external factors have made copper the most resilient of the LME metals. Prices completed a full recovery to back above pre-COVID-19 crisis levels within just six months, even though the virus is still causing operational problems at mines in South America and elsewhere. Nine of the eleven largest mining companies in the world saw production fall in the first half of 2020, highlighting the on-going challenges in primary supply.
Demand has also been badly affected in nearly every country in the world. Only three nations will see a rise in total copper consumption in 2020, while the worst affected, such as India and Brazil, may well see a one-off drop of between 25-30%.
However, one of the most surprising consequences of the pandemic has been to expose the scrap and recycling sectors as the most vulnerable link in the copper industry supply chain. World imports of copper scrap slumped 39% y-o-y in Q2 2020 and the sector’s activities may not normalise until Q4 2020 or even Q1 2021. Restrictions on concentrate availability and scrap have compelled China to buy surplus cathode aggressively from the rest of the world, resulting in a sharp fall in visible exchange inventories. This trend looks set to continue, suggesting to Roskill that the current rally in copper prices may have longer and higher to run.
Roskill’s NEW Copper Demand: Outlook to 2030, 2nd Edition report will be published in October 2020. For more information or to pre-order, click here.