Bearish-copper investors were given a scare today after learning that Beijing is weighing up a US$220 billion stimulus package to speed up infrastructure spending. The news sent the price of copper soaring after plunging to a 20-month low this week on recession fears.
The third most consumed metal in the world is copper after iron and aluminium which is an excellent conductor of both heat and electricity, as well as being highly malleable. The metal also plays a huge role in the transition to renewable energy.
One thing to know is that when copper is in demand, it’s a sign of economic health. The red metal has been a reliable historical indicator of that. The essential component is used in consumer products like mobile devices, medical equipment to infrastructure like electrical wiring and equipment. Given its common use, copper demand rises when factories expand, properties are built and cars are manufactured.
However, since the world’s second largest economy has stuck to its zero-Covid policy, a full lockdown in March exacerbated strained supply chains and productivity growth. The May manufacturing purchasing managers’ index even reflected the contraction after the index rebounded for the first time since February.
As the rally gained momentum early last year, Bank of America’s metals analysts warned that in an extreme scenario where rampant demand continued and copper supply broke down entirely, prices could hit US$20,000 a ton.
Now, with copper trading at US$7,820 as of Thursday’s session, they say a fall to US$4,500 is possible if gas shortages in Europe spur a collapse in demand. This is not their base-case forecast, but they still expect that the slump won’t bottom out before prices breach US$6,000 a ton.
ASX-listed copper producers have felt the pain, however in today’s session after the red metal rebounded over 4 per cent on further China stimulus hopes, the sector closed off today’s session with the much needed reprieve.
A few standouts include, Kincora Copper (ASX:KCC) soared 13.2 per cent to 6 cents, Solis Minerals (ASX:SLM) jumped 8.7 per cent to 6 cents, Culpeo Minerals (ASX:CPO) and NT Minerals (ASX:NTM) both added over 4 per cent, Sandfire Resources (ASX:SFR) rose 3.1 per cent to $4.32 and Oz Minerals (ASX:OZL) closed 1.3 per cent higher at $1.33.
Sources: Bloomberg, UBS