Copper – Commodity Analysis and Forecast

(Thomas Mak and Farzan Faizeen)

Due to the COVID-19 pandemic, the supply-demand dynamic of the copper market has been subjected to significant changes. China, the largest copper importer, had to scale down its industrial production due to lockdown measures. Due to social distancing measures and reduced aggregate demand in the economy, many workers have been furloughed or even terminated, which inevitably affected the efficiency of industrial production. With less output being produced, developers were deterred from continuing with their infrastructure projects.  

Nevertheless, it is forecasted that demand will contract at a faster rate than supply. There is expected to be an 8.5% contraction in primary demand by the end of the year and total stocks in China has increased by 50% in the first few months of 2020. Several markets around the world rejuvenating and experiencing positive growth recently. Copper had somewhat of a resurgence, climbing in price from the middle of 2016 until August 2019, but the pandemic has undeniably created an uncertain future for the copper market.   


The price performance of copper is one of the leading indicators of global economic growth owing to its wide range of uses from construction to electrical goods production. High demand is a positive sign for the global economy because a surge in copper demands represent that there is a steady increase in infrastructure investment and industrial activities. As countries around the world began to step out of stringent lockdown conditions and implement economic stimulus measures, copper prices recovered rapidly. In Q3 2020, the price of copper has increased by 40% from its March lows to a 14-month high at $6,300 a tonne. Such drastic improvement can be attributed to strong demand in China and supply disruptions in Chile and Peru.  

An increase in 5G infrastructure investment in China played a vital role in facilitating demand recovery. China, the largest copper importer that consumes half of the world’s output, is aiming to build 500,000 5G base stations by the end of 2020. With China remaining eager to improve its digital economy through sophisticated 5G infrastructure, base station manufacturers are scrambling for copper supply, which in turn provides additional tailwind for copper prices because the level of inventories will decrease as demands continue to rise.  

Source: Bloomberg, National Bureau of Statistics of China 

One of the key reasons why copper prices outperformed market expectations is because demand and output remains robust in China despite the threat of COVID-19. Apart from the fact that imports of copper from Chile increased to 1.284 million tonnes in February 2020, China’s copper products output (light blue line in the graph) reached a 12-year high just one month before the WHO officially declared COVID-19 as a global pandemic. 

At the same time, supply disruptions at South America have further strengthen copper’s bullish outlook. According to the Peruvian Ministry of Mines and Energy, copper production fell by 33% y/y in Q2 2020 to 1.5 million tonnes. Such decrease can be attributed to the repeated extension of lockdown orders, which saw production level fell to the lowest point since Q2 2015. Moreover, Peru’s South America counterpart, Chile, is also experiencing supply disruptions. Codelco, the largest copper producing company in the world, is struggling to put their mines back to full capacity because workers and trade unions are becoming more vocal about the occupational health risks from COVID-19. Until the Chilean government (who owns 100% of Codelco) can resolve the stalemate between Codelco and its workers, it is unlikely that copper supply can return to pre-coronavirus level.  


The directional move indicated by the Moving Average graph shows that supply disruptions at South America is contributing to the formation of bullish pattern in Q3 2020. With China’s 5G ambition providing consistent support for copper demands, it increases the probability of copper gathering positive momentum as copper prices rebounded to test the 2.9120 level in July 2020, which in turn reinforce copper’s foundation to break the 3.0000 barrier.  


One month later in August 2020, copper prices surpassed the 23.6% Fibonacci Retracement Levels that formed the 3.0000 barrier to reinforce the continuation of positive market outlook for copper. Stochastic reach to the overbought areas of the graph in turn increases the likelihood of copper prices gathering positive momentum, which reinforces the optimism of copper as the market prepares for the possibility of copper trading between the 3.1200 and 3.3000 levels.  


China’s relentless pursuance towards 5G domination and supply disruptions at South American countries make copper the ideal countercyclical investment during the COVID-19 era. Nonetheless, investors must be cautious about the sustainability of the copper price growth.  

In the short-term, investors should take advantage of the current V-shaped economic rebound and buy copper futures. The bullish outlook of copper was further reinforced in Q3 2020 as the 3-month LME prices increased by 22.8%, coupled with the creation of copper products remaining strong in China, copper prices can continue to fluctuate above the 3.0000 barrier if the 2.8960 support line can gain further stability.  

But in the long term, investors must understand the downside risks of copper before deciding whether the metal is an ideal commodity for long-term portfolios. Copper prices may face substantial downward pressure in 2021, analysts from the CRU group is expecting copper supply to outpace demand by 400,000 tonnes this year, which would become the largest annual market surplus since the 2008-09 financial crisis. Unless there is an actual shift in the supply-demand dynamic, it is our provocation that copper prices will drop below the 3.0000 barrier again.      

Industry jargons 

Moving Average: A calculation used to analyse price performance by engineering a series of averages of different groups of the full data set. The core function of MA is to condense and simplify the price data and establish an updated average price.   

Fibonacci Retracement Levels: Horizontal lines on a momentum graph that highlight where support and resistance are likely to occur. There are 5 different Fibonacci levels (each level is associated with a percentage): 23.6%, 38.2%, 50.0%, 61.8%, 78.6%.  

Stochastic reach: A form of modelling method that predicts the probability of various outcomes under different market conditions, using random variables.  

Downward pressure: Pressure exerted by market forces that negatively impact the price performance of a commodity.  

LME: London Metal Exchange. The world’s largest market in options and futures contracts on metals.  


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2020. 10 Top Nickel-producing Countries. Investing News. pp. 1-2.  

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2020. Rise in China copper production suggests ‘robust’ recovery. Financial Times (Natural Resources Column). pp. 1-3.  

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World Bank Group.  

2020. Commodity Markets Outlook: Implications of COVID-19 for Commodities (April 2020). World Bank. pp. 1-47.   

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