The price of copper has nudged up to £6.66 / kg over the least week even though bonded stocks also increased to 169 kT.
With supply exceeding demand I expected the price to start falling, but the rapid rate of vaccination in the US and continuing economic growth in China is creating expectations of demand once again exceeding supplies.
Meanwhile Chile is experiencing a new wave of Covid infections, even though it has a successful vaccination programme using a vaccine from China. This may disrupt supplies from one of the worlds largest copper producers in the short term, but also illustrates the potential risk of vaccinations alone not stopping future Covid infection waves.
I’m still short on the price of copper and miners will be rushing to fill orders while the contract price is still over £6 / kg. Also, the larger the stocks before the price corrects the sharper the correction will be.
The price of copper is holding at £ 6.57 / kg as LME stocks recover to 114 kT, the first time they have been over 100 kT since January.
The copper supply chain are clearly maximising output to take advantage of the current historic high in the price of copper while demand has been cooled by the continuing impact of Covid on the global economy.
I expect the price of copper to stay high until stocks reach 150 kT and then to fall back to £5 kg as speculators unload there positions.
There is an uneasy balance of supply and demand at the moment with the price of copper holding steady at it’s elevated £ 6.50 /kg price and bonded stocks increase slightly to 84k.
For speculators the question will be whether the current elevated price is sustainable and whether they should double down on their investment or offload to secure their profits.
For miners and processors this is the time to max supply and their are potential off market deals to be done to secure long term supply contracts at historically high prices, especially with the global drive towards Electric Vehicles driving demand.
Users will be trying to increase prices to cover the increase in the cost of copper, both long term pricing and short term contracts. They can argue that the current high price is here to stay, knowing that if there is a fall in the price of copper they may be able to hand onto those price increases, whereas the final customer will be shopping around as much as possible to minimise price increases.
I also expect a shift away from average last month copper price based contracts, FIRM, to average next month’s copper price, VARIABLE, to shift the risk of copper price increases onto the user / end customer.
Can miners and processors increase supply to match demand ? Investment projects will have a good rate of return but can easily have a 5 or more year lead time. Also there is an ever increasing environmental restrictions on new copper projects.
Copper LME has held steady over the last month at £5.85 / kg while LME bonded stocks have fallen to below 100 kT.
Unless supply increases to rebuild stock levels the price of copper will increase further as dealers who have been holding off ordering for stock have no option other than to buy at the current, relatively high, price.
No dealer would want to be sitting on expensive stock if the price falls but unless supply side issues can be resolved then the current global shortage of copper will continue.
Speculation in copper futures is driving the LME price of copper up to levels not seen since 2011. A resurgence in COVID mutations is likely to dampen the global economy and ease pressure on the price of copper.
However, long term price stability will only happen if supply exceeds demand enought o rebuild physical stocks, and that could be hampered by a resurgence in virus outbreaks until there have been enough vacinations globally to bring the pandemic under control.
LME bonded Copper stocks fall below 100 kT , way below their usual range of 200 kT to 300 kT.
Traders are either convinced that demand will drop to below supply or that supply will ramp up to exceed demand. it’s interesting to note that the last two dips in copper stocks did not result in a price surge and in both cases supply was ramped up to meet demand.
Will suppliers be able to ramp up production during the Covid-19 pandemic ?
Will South american producers be able to ramp up production during the current drought ?
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Copper price is holding steady at £5.15 / kg as bonded warehouse stocks fall to 145 kT.
The falling copper stocks are the result of supply chain issues rather than being driven by demand and the question is how long will it take for the copper producers to take advantage of the highest price in two years to ramp up their production in the current pandemic and climate environment ?
Also, how long will buyers be able to put off buying more copper at this price ?
Traders are unlikely to want to push the price above the last nine year peak and risk being caught out holding expensive stocks once supply recovers form the current disruption.
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