Copper Surges as Macro Investors Bring Metals in From the Cold

(Bloomberg) -- Copper rallied to a fresh seven-year high on bets that further economic stimulus and a global post-pandemic recovery will fuel demand for the metal into next year.

Prospects for a U.S. virus-relief package before the end of the year grew substantially this week after a plan outlined by Republican and Democratic lawmakers emerged as the first real chance for a compromise that has eluded party leaders and the White House for months. Meanwhile, nations across Europe are pushing ahead with fast-track Covid-19 vaccine programs.

The copper market is witnessing the sharpest rally in more than a decade, with China’s rampant appetite for commodities and supply disruptions in the early stages of the pandemic lifting prices more than 75% from lows seen in March. With the dollar weakening, inflation expectations rising and governments putting unprecedented stimulus programs in place, further investor flows could drive prices higher still.

“This is 100% a macro story now,” Michael Widmer, head of metals research at Bank of America Merrill Lynch, said by phone from London. “It’s really broadening now to the wider investor space.”

That’s not to say fundamental conditions aren’t still helping prices along. With Covid-19 vaccines on the horizon, there are deepening concerns that miners will struggle to match demand as a global recovery bolsters this year’s China-driven boost.

“It’s a favorable environment from a price point of view,” Ivan Arriagada, chief executive officer of Chilean miner Antofagasta Plc, said in a Bloomberg TV interview. China’s demand “has been sustained quite strongly,” he said, and the global copper market is heading for a slight deficit next year.

Still, TD Securities analysts led by Bart Melek said broad commodity demand signals are now showing their first signs of stalling following the pandemic carnage. This raises the question how long the rally in copper prices can last given the combination of waning demand growth and less speculative buying, especially from China.

Copper rose as much as 1.3% to $7,774 a metric ton in London, the highest since March 2013, and settled at $7,760.50. Most other industrial metals traded higher, with aluminum adding 0.8% and nickel climbing 2.8%.

©2020 Bloomberg L.P.

With assistance from Bloomberg