• Global manufacturing has bounced back strongly from the COVID-19 era jitters.
  • All major world economies are reporting increased industrial activity.
  • The COVID-19 pandemic remains a key driving factor.

Copper prices continue to rise steadily in 2021, building on a strong closing in 2020. The commodity’s current rally is largely aided by rising cases of COVID-19 in South America, robust global manufacturing, US stimulus, and rising confidence in a post-coronavirus global economy.

Rising COVID-19 in South America

Chile and Peru, the world’s two largest producers of copper, have been reporting a rebound in COVID-19  infections since mid-December 2020. It is widely reported that South America could be facing the second wave of the coronavirus pandemic.  Consequently, copper mines in Peru and Chile are operating below the capacity in order to adhere to the COVID-19 guidelines.  

This week, Chile reported that the infected number had reached 26% of its June 2020 peak, and the figures are on an upward trend. Reduced production in the two countries has resulted in higher copper prices in the global market.

This is important because Chile and Peru are among the world’s biggest copper producers. As such, the rising cases imply that the countrys could reduce their production in the near term. 

Rising optimism on global economic recovery

Copper has greatly benefitted from the rising global economic activity experienced since November 2020.

Manufacturing data from the world’s leading economies show a rising trend in global factory activity. Jibun Bank Japan reported that Japan, the world’s 3rd largest economy, had a 50.1 manufacturing PMI for December 2020. 

It is the first time that the country is reporting a manufacturing expansion since April 2019. The performance also bettered analysts’ forecast of 49.7. On January 5th, the United States reported a 60.7 manufacturing PMI, which was above analysts’ forecast of 56.6 for December. 

On the other hand, China and European Union figures were slightly below analysts’ expectations. China’s National Bureau of Statistics reported a manufacturing PMI of 51.9 for December 2020. This was a slight drop from November 2020’s 52.0 and the 38-month high 52.1 reported in October 2020. The EU reported a drop of 0.3 in its December 2020 manufacturing PMI from 55.5 a month earlier.    

The growth in manufacturing means that the global demand for copper will keep on rising, with copper prices in tow.  Notably, as discussed above, the US and Japan are the only economies whose manufacturing PMIs exceeded economists’ expectations. 

However, it should be noted that China and the Eurozone indices point to an expansion rather than a contraction in manufacturing.  Economists at JP Morgan have also reported overall growth in the global manufacturing PMI.

The trends in manufacturing figures among the world’s largest consumers of copper are indicative of a possible post-COVID-19 economic boom. This is great news for copper prices going forward.

Meanwhile, in the United States, Democrats took control of Congress. This means that the US will receive more stimulus, which is also supportive of copper prices. In total, they plan to allocate funds to individual checks, state and local government funding, and infrastructure. This is also beneficial for copper prices because it devalues the dollar. The chart below shows the overall performance of copper and the dollar index.

Technical analysis

The copper price is currently trading at 3.6430, which is 0.19% lower than the day’s opening price. However, this is still higher than the 50-day moving average of 3.6292 and the 100-day moving average of 3.5798. This further points to a rising trend of copper prices and a bullish approach to the commodity in the market.

Also, oscillators like the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) have been on an upward trend. In fact, the latest bar of the MACD is above the neutral level. Therefore, in the near term, it seems like bulls are still in control, which will push it higher.

Copper price. Technical analysis