Copper headed for the biggest monthly gain in a decade

By Paul Ploumis

SPOKANE (Scrap Monster): The copper prices have surged higher by nearly 25% so far in 2016 and by nearly 21% in the month of November alone. The metal prices are headed for the biggest monthly gain in almost a decade. It must be noted that copper had been the worst performing commodity since past two years. The sudden surge in prices is mainly on account of surge in Chinese demand for the metal. Incidentally, China is the world’s largest copper consumer, accounting for nearly 49% of the global copper demand.

Copper for three-month delivery in the London Metal Exchange (LME) surged higher Thursday by 3.8%. The prices have been rallying ever since the victory of Donald Trump in the US presidential elections, on hopes of speculated demand rise on account of multibillion dollar infrastructure projects to be announced, once after assuming presidential office in January. Mining stocks too have witnessed sharp rally during the month, with FTSE 350 Mining Index up by 8.1%. Led by copper, almost all other industrial metals too gained significantly. Zinc metal recorded 2% jump during the day. It must be noted that zinc metal prices have rallied by almost 70% since the beginning of the current year.

Following the unrelenting rally in copper prices, Goldman Sachs has come out with a positive view on the metal’s short term outlook. According to them, the increased demand from China has left the market tighter than expected. The investment bank has predicted broadly balanced market for copper for the entire year 2016. At the same time, the bank along with Deutsche Bank has warned that prices have already overshot fundamentals. The rally probably still has legs, but it is advised to remain cautious, the banks added. Meantime, most analysts remain skeptical of sustained rally in metal prices. All out of 22 banks and research institutions who participated in a recent survey by FocusEconomics had stated that copper prices are unlikely to end the year at a price higher than copper’s current spot price.

As per analysts, fundamentals for copper have improved. The recovery in copper demand signals the health of overall global economy, they said.

Meantime, the preliminary data published by the International Copper Study Group (ICSG) for the month of August this year indicates that refined copper market balance showed an apparent production surplus of around 154,000 metric tonnes during the month. The refined copper balance for the first eight-month period of the year ended in production deficit of around 91,000 metric tonnes as compared with the marginal production surplus of around 10,000 tonnes during the same period in 2015. The world refined copper production increased by nearly 3.1% during the first eight months of the year, whereas mine production surged higher by around 5.8%. The refined copper production during the month witnessed significant growth of 7% in China. Also, global usage of the metal jumped higher by 3.8%. The Chinese apparent demand increased sharply by 7.5%.