Copper prices surged on Wednesday as rising inflation expectations caused by US stimulus, a falling dollar, decreasing rates of coronavirus infections and historically low stocks spurred fresh buying.
On the Comex market, copper for delivery in March advanced 2% to $3.7955 a pound ($8,350 a tonne). If it closes at these levels it would be the highest since March 2012.
鈥淭he idea that US stimulus is going to lead to higher inflation has taken hold this week, which is a positive for copper and other commodities used as a hedge against inflation,鈥� Tom Mulqueen, an analyst at Amalgamated Metal Trading told Reuters.
鈥淔alling inventories could help to draw bulls back in鈥�
Citigroup analyst Oliver Nugent
鈥淣ew coronavirus cases are starting to come down and the dollar is lower,鈥� Mulqueen said.
US president Joe Biden鈥檚 $1.9 trillion stimulus plan is expected to boost economic growth and fuel inflation at a pace faster than previously expected.
鈥淲e expect high metal prices to continue, with a positive effect on our metal result,鈥� said Roland Harings, CEO of Europe鈥檚 largest聽copper聽producer Aurubis.
鈥淲e anticipate a strong improvement in demand for our products overall,鈥� he said.
While most of Wall Street is gearing up for higher prices, the rally is not without its doubters.
JPMorgan Chase & Co. analysts last month said the current China-driven supercycle has peaked, and Chinese investment growth is set for declines.
鈥淧eople are generally optimistic for the long-term prospect globally, but it鈥檚 a question of when it鈥檚 going to really take hold,鈥澛爌ortfolio manager at Orion Resource Partners Jon Lamb told Bloomberg.
鈥淚t鈥檚 clarity on what those initiatives 鈥� from the next round of covid relief funding to post covid stimulus infrastructure projects where EVs and renewable energy are going to be big focuses 鈥� will look like and the timing will be the catalyst.鈥�
Inventories
Copper stocks in LME-registered warehouses聽stand at 74,675 tonnes, close to last September鈥檚 15-year trough.
Low stocks have fuelled concern about availability on the LME market, creating a premium for cash copper over the three-month contract.
鈥淔alling inventories could help to draw bulls back in,鈥� Citigroup analyst Oliver Nugent told Bloomberg. Citigroup sees a likely short-term drop in prices as a buying opportunity.
鈥淭he extra kicker you need is those organic moves to a market that鈥檚 trading like it鈥檚 experiencing really tight fundamentals,鈥� he said.
鈥淪pring is likely to bring a fresh demand boost,鈥� Morgan Stanley analysts聽Susan Bates聽and聽Marius van Straaten told Bloomberg.
鈥淭he supply side appears ill-positioned鈥� to meet it, he said.
(With files from Bloomberg and Reuters)