Copper prices have rebounded strongly since hitting an 11-year low in March. After briefly trading below 2 dollar per pound, the metal has recovered 50 percent of its value, as demand from China soars and COVID-19 hits supply from South America.

By Sachin Patel, Senior Director, Metals at CME Group

China’s manufacturing and construction sectors, which consume around half of the world’s copper, have posted a strong recovery from the COVID-19 shutdown earlier in the year, with factory activity in June growing at its fastest rate since December.

This recovery was reflected in a 50 percent month-on-month increase in unwrought copper imports by China in June to a record high of 656,483 tonnes, just over double the level imported in the same month of 2019. For the first six months of 2020, copper imports totaled 2.84 million, a 25 percent increase on the same period of 2019, despite the disruption caused by COVID-19.

Supply Factors

The price of copper is also being supported by supply factors. The world’s two largest copper producers, Chile and Peru, continue to face severe COVID-19 outbreaks. In Peru, copper output fell by 42 percent in May, while Chile’s state-run miner Codelco has temporarily closed its largest smelter and refinery and suspended construction at its flagship mine.

Strong demand for the metal from China is expected to continue going forward, boosted by government stimulus measures. Tax exemptions and lower borrowing rates have been introduced for manufacturers to help the sector recover from the impact of the pandemic.

China's Role

Government infrastructure spending is also expected to increase in 2020 to offset slower growth in other areas of the economy, with the 2020 National People’s Congress Work Report highlighting infrastructure and urbanization initiatives as a priority for the year ahead.

The report said bonds worth 3.75 trillion renminbi would be issued in 2020 to finance the infrastructure program – a 1.6 trillion increase from 2019. Both manufacturing and infrastructure are key consumers of copper.

Important Component

Copper has long played an important role in China’s economy. Currently, China is the world’s biggest importer of copper by some margin, accounting for 43 percent of global copper ore imports - more than three times the level of Japan in second place.

While copper usage in China is primarily driven by the fact that it is an important component in manufacturing and construction, a number of ongoing government initiatives are expected to increase demand further.

Renewable Energy Demand

China’s switch to renewable energy systems is likely to be a key demand driver going forward. Copper is the best non-precious metal conductor of electricity due to the lack of resistance it offers.

This property makes it an important component in energy-efficient generators and renewable energy systems, with solar and wind energy installations using larger volumes of copper than conventional thermal power generators.

More Projects

Global copper demand for solar and wind energy systems is expected to rise by 56 percent by 2027 from 2018 levels, according to research by the International Copper Association (ICA). Although the ICA does not provide a breakdown for individual countries, it predicts China will maintain its leading role for annual installations of wind turbines.

In the short term, there could be a spike in demand for copper as projects are brought forward following the news from China’s Energy Administration that subsidies for new offshore and onshore wind farm projects will end sometime later in 2020 and 2021 respectively.

Electric Vehicles

Electric vehicle production is also expected to drive China’s copper consumption. Copper is an important component in electric vehicles, used in the batteries, windings and copper rotors of electric motors, as well as in the wiring and charging infrastructure. At an average of 83 kilograms of copper, the typical electric vehicle uses nearly four times as much of the metal as a conventional car.

While electric vehicle sales have been subdued in recent months due to a combination of the COVID-19 pandemic and a reduction in government subsidies, China has ambitions to be a leading electric vehicle manufacturing center by 2025, as part of its Made in China 2025 initiative. Such a move would further support demand for copper.