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Doctor Copper is Still Diagnosing Demand-Supply Balance

By Mohit Oberoi, CFA - Published 6 Months ago. 0 Comment
Doctor Copper is Still Diagnosing Demand-Supply Balance
  • Copper is also known as Doctor Copper for its ability to predict economic cycles. However, according to some analysts, copper is just like another commodity and its prices reflect the underlying demand-supply.
  • Meanwhile, uncertainty over the demand-supply equation has muddied the equation for copper. Dr. Copper is still diagnosing how good or bad is the demand-supply equation.

Doctor copper

Copper recently fell to its 2016 lows. That’s not surprising as almost all industrial metals fell to their 2016 lows. However, copper’s medium-term outlook would depend on the underlying demand-supply equation. However, currently, there is an air of uncertainty over both demand and supply.

 

The IMF expects global GDP growth to fall 3% this year. Falling economic output would take a toll on global copper demand. However, the positive news is that China has resumed near-normal operations after the initial lockdowns. China’s March PMI data showed expansion in manufacturing activity. The country’s March trade data was also better than expected. Furthermore, China’s unwrought copper and copper ore imports rose on a yearly basis in March. In the first quarter, China’s unwrought copper imports were only down 0.5% as compared to the corresponding period in 2019.

Copper supply

While global copper demand should be lower this year as compared to 2019, supply cutbacks should help ease some pain. Copper mining is mainly concentrated in Latin America. Several of the world’s leading copper mines have also been hit by the COVID-19 lockdowns. Antamina mine in Peru has suspended operations. BHP Billiton, Glencore, Teck Resources, and Mitsubishi Corporation own a stake in the mine. Freeport-McMoRan has also curtailed some operations.

 

Meanwhile, while there have been supply curtailments, currently the outlook is quite hazy over copper’s near-term supply-demand outlook. That said, in crisis times, the demand side of the equation turns out to be a bigger price driver.

 

Looking at crude oil, the sharp cut in supplies has failed to have a substantial impact. Things, unfortunately, look no different for copper and visibility of demand recovery would be essential for a rebound.

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