• Global supply-chain bottlenecks have contributed to increasing inflation and high commodity prices. 
  • China plans to publicly auction 2.3% of its May 2021 copper output. 
  • Global copper demand deficit stands at 100% by 2050. 

Copper futures traded at a +0.87% price change on June 23, 2021, from the previous day’s trading. It ranged from a low of 4.2278 to a high of 4.2823 due to a stronger dollar and prospects of a hike in US interest rates. In his testimony to Congress, Fed Chair Jerome Powell expressed optimism that the recent increases in inflation were transitorily buoyed by the market’s response to supply bottlenecks post-pandemic. May 2021 had seen the price of a copper contract hit an all-time high at 4.8888, leading to an annual change of 56.7%. 

Copper Prices

Copper Prices

In the New York Comex market, the July 2021 delivery for copper surged 0.6% to read $4.18/ pound ($9,196/ ton) as of June 21, 2021. The aluminum contract rose 4.92% (MoM) to trade at 2,433.53 from a previous reading of 2,319.39. Since May 2020, the aluminum price has risen 65.96%, where it traded at 1,466.37.   

China’s crackdown

China contains significant metal reserves with copper (Hg) at 2 MT, aluminum (Al) – 800,000 tons, and zinc (Zn) – 350,000 tons. Chinese factories had their profits slashed in May 2021 after gate prices (expenses or PPI) rose 9%, the highest rise since May 2008.   

China’s PPI

China’s PPI

Costs of goods and commodities such as oil and natural gas have surged 99.1% (YoY), with CPI at +1.3% YoY.  

On June 22, 2021, the Chinese government stated that it would auction non-ferrous metals totaling 100,000 tons in July 2021 in a bid to curb commodity prices. The amount of copper to be publicly auctioned is equivalent to 2.3% of the refined output produced in May 2021, Zinc at 5.7%, and aluminum at 1.5%. Copper rose the highest at $10,750 a ton in May 2021 due to the increase in global liquidity. News of the release of China’s reserves have since eased copper’s price to $9,260 per ton. 

In China, copper futures have declined to less than 70,000 yuan, driven by the news to release the stockpiles as well as the US Fed’s likely tapering of the monetary policy in 2023. 

China’s Copper prices

China’s Copper prices

Copper production

With the world looking to transition to the green economy, data from the International Copper Study Group (ICSG) indicated that global copper production surged 3.7% in Q1 2021. The output of copper concentrates surged 5.5%, while there was a 3.5% decline in the solvent extraction-electrowinning (SX-EW) component. 

Peru’s copper output (the 2nd largest producer in the world) rose 3% in Q1 2021, driven by an 18% increase in March 2021 (YoY). The first quarter’s production was still 10% below that of 2019, with miners yet to attain the pre-pandemic state. Development of Indonesia’s Grasberg underground mine stormed up production by 91%. While copper consumption around the globe increased by 4.5% in Q1 2021, the usage was still inadequate to cover the demand decline of 9% accrued in 2020. However, the renewed call to replace fossil fuels driven by the US will likely increase consumption into 2022. 

According to Glencore CEO, Ivan Glasenberg copper supplies need to be ramped up by an annual increase of 1 MT until 2050. By then, demand will have hit a 60 MT (+100%) increase from the current 30 MT annual demand of copper.  

Technical analysis

Copper futures began a steady uptrend on April 14, 2021, which turned into a downslope pattern. At 4.2730, the futures are below the 9-day EMA at 4.2968, indicating a continuous downtrend in prices.  

Copper futures

There is a decline in trading volume among buyers. The 14-day RSI supports declining buying activity over selling action at 37.21. Prices are moving towards 4.2535. Failure of the sloping curve may cause a price reversal towards 4.5000.