Copper prices are surging, and for once it’s not because the economy is booming.
The metal — known colloquially as Dr. Copper because its performance is often used to gauge the health of the overall economy — has surged by a staggering 45% since mid-March. That’s despite the International Monetary Fund downgrading its global forecast and a resurgence of Covid-19 infections forcing governments around the world to re-impose business-crippling lockdowns.
Copper’s gain has been driven chiefly by concerns over strains on supply from key producers South America. Thousands of copper workers have fallen ill in Chile, which is by far the world’s largest producer of the metal, accounting for more than a quarter of global supply. Mines have postponed non-essential activities and reduced their labor force in an attempt to keep workers safe without forgoing too much output. Infections are also slowing the mining recovery in Peru, the second-biggest producer.
Meanwhile, demand in China is recovering with factories ramping back up in the second quarter.
“We’re seeing some fairly good demand, we’ve seen some production cuts,” said Bill O’Neill, partner at Logic Advisors in Upper Saddle River, New Jersey. “You’re going to see global demand for copper pickup in the next 6 to 12 months.”
In Chile, unions and local politicians are calling for tighter restrictions, which may further crimp supply. BHP Group announced plans to scale back activity at one of its mines, while Codelco suspended smelting and cut back refining at one mine, and stopped development work at its largest site. Workers at two mines are voting on whether to go on strike, raising the prospect of further disruptions.
The risk to production has some analysts warning the market could slip into a supply deficit this year. While Chile’s government expects a rebound in global supplies in 2021, demand is likely to recover as well with economies bouncing back from the pandemic.
Workers are falling ill in Peru, slowing the pace of recovery. Mines were expected to be almost back to pre-pandemic levels by the end of the month following a phased restart, but the country’s Energy & Mines minister said Thursday that forecast was now looking overly optimistic.
In addition to the pickup in Chinese demand, there are some other signals of a nascent recovery that could also support higher prices for the metal. Bloomberg Economics’ global GDP growth tracker rebounded in June to the highest since early 2019, indicating a rebound after lockdowns put in place to stem the Covid-19 outbreak were lifted.
Copper in London reached $6,360 a ton at one point on Thursday, the highest since May 2019, before slipping back to $6,300. Mining companies able to keep up output are reaping the benefits. Freeport-McMoRan Inc., the world’s largest publicly traded copper company, said Monday that it sold about 8% more copper in the second quarter than it forecast earlier in the pandemic.