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Below are Quote On Copper, the bellwether of the global economy, witnessed an eye-catchingbull run in 2021 By Mr. Yash Sawant, Research Associate, Angel Broking Ltd.

Copper: Will the rally extend any further?

Copper, the bellwether of the global economy, witnessed an eye-catchingbull run in 2021. The red metal touched record higher levels across exchanges on the back of a tighter supply market, increasing investments towards the green revolution and revival global economies.

After posting significant gains of over 26 percent on the London Metal Exchange (LME) as well as the Multi Commodity Exchange (MCX) in the first four months of 2021, the red metal prices seem to be losing steam. In May’21, Copper prices gained over 1 percent on the LME whilst prices on the MCX dipped over 2 percent.

What led to the halt?

China set out to limit the soaring commodity prices coupled with expectation of further monetary policy tightening by the People's Bank of China (PBOC) were one of the major setbacks for Copper and other industrial metals.

The recent spike in commodity prices in top metal consuming nation China hampered their downstream industries and stoked potential inflation worries. Higher raw material prices drove China’s factory gate prices higher in April’21 whilst the industrial output grew at a slower than expected pace in a similar time frame.

After which Chinese officialspledged to strengthen its management of commodity supply and demand to curb "unreasonable" increases in prices. The regulators also vowed toincrease the scrutiny over the commodity market and eliminate irregularities and malicious speculation.

Increasing Copper Supplies

The recent reports published by theInternational Copper Study Group (ICSG) stated that the global refined Copper marketmight land in surplus of 79,000 tonne in 2021 which turned markets skeptical about the recent rally in Copper prices.

While global investors have been concerned about a tight supply markets and potential shortage of Copper in the coming months due to increasing demand, concerns over a possible surplus triggered an alert in the global markets.

The ICSG projected the global mine production to increase by 3.5 percent in 2021 following the resumption in global mining activities and recently commissioned mines coming online. Also, a number of new projects lined up in Congo, Chile & Peru is expected to further boost the global supply of Copper.

Despite the virus outbreak and strict nationwide lockdowns, global refined Copper usage increased in 2020 as China imported massive amounts of refined copper which downplayed the impact of plummeting demand outside China. Unusual amount of Copper brought into China led to an increase in global refined Copper demand by 2.5 percent in 2020.

However, the demand for refined Copper in China, the engine which helped Copper prices revive from record low levels, is expected to fall by 4.5 percent in 2021. The enormous imports by China in 2020 reportedly exceeded their actual demand leaving a sizeable surplus in Chinese markets. While the demand from the world outside China is believed to recover; stalling Chinese demand might lead to a marginal increase in the global refined Copper usage for 2021.

That, coupled with stern power consumption norms and stalling demand in China and global production capacities resuming operation also hint towards aprobable surplus in the global refined Copper market.

Mutanda mine to resume in 2022

Glencore is planning resume operations at the Mutanda Mine situated in Katanga Province of the Democratic Republic of the Congo by 2022. Mutanda mine, the world’s biggest cobalt mine, which also produces Copper on a large scale was shut in late 2019 for care and maintenance.Also, increased taxes, low cobalt prices and increased costs made it inviable for the mine to continue operations.

However, the recent boom in Copper and Cobalt prices, on the back of the booming EV segment and increase investment towards a green economy, raised bets on resumption in operations at Glencore’s Mutanda mine.

The Mutanda mine which has five Copper production lines produced103,200 tonnes of Copper in 2019 and 199,000 tonnes in 2018. While there has been no announcement for any date of resumption, markets are expected to have a keen watch on the upcoming events at Glencore’s Copper producing capacity.

Outlook

Strict environmental norms, increased scrutiny on the commodity markets and a tighter monetary policy imposed by China have paused the rally in industrial metals. While the massive vaccination drives and a number of economies easing the pandemic led restriction is expected to boost markets risk appetite, weaker demand prospects from top metal consumer China might keep the Copper and other industrial metals prices in check.

Base metalsmight also feel some pressure after President Joe Biden’s infrastructure plan was being narrowed down to $1.7 trillion from $2.25 trillion after being opposed by the Republicans.

However, worries over a possible strike at BHP’s Escondida& Spence Copper mine situated In Chile after the union representing worker rejected the company’s recent offer might be supportive for Copper prices. Escondida Copper production stood at 1.19 million tonnes in 2020, while Spence produced 146,700 tonnes in the similar time frame.

We expect Copper prices to trade lower towards Rs.730 per kg in a months’ time. (CMP : Rs.747.90)

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