SINGAPORE/BEIJING: A stunning V-shaped recovery in the price of copper is looking stretched as top consumer China enters its summer construction slowdown and fears of supply disruptions from the coronavirus have been mostly priced into the market. Benchmark three-month copper on the London Metal Exchange leapt 21% in the second quarter – its best quarter in a decade – on a strong post-virus recovery in China, fears of supply upsets, a weaker U.S. dollar and massive global stimulus.
The metal used in everything from construction to consumer goods has now recovered all of its losses in 2020, rebounding back past $6,000 a tonne.
However, as the hot, wet summer months have arrived in China, many construction sites are slowing work, stripping away a key driver of copper’s recent rebound.
“Orders in June were lower and we expect them to be worse in July. June to August are seasonally weak,” said a copper rod maker in Guangdong whose plant ran at full capacity in March and April and at a slightly lower rate in May.
“Will orders pick up in September? That needs to be confirmed later. We are mainly following the real estate and national grid figures,” said the maker, who supplies the power and construction sectors.
Meanwhile, export orders for copper-rich goods such as air conditioners from outside China remain weak, even as countries start to emerge from COVID-19 lockdowns.
“From mid-May to now – and we think it’s going to continue for the coming months or so – is the slowing of demand,” said Yanting Zhou, an analyst at consultancy firm Wood Mackenzie.
A move by fabricators to turn to scrap due to surging refined metal prices has also hurt demand, she said.
Copper’s recent surge has been propped up by fears that the spread of COVID-19 could disrupt mining in top ore producer Chile.
Coronavirus cases spiralled upward in May and early June, leading powerful labour unions to pressure the government and mining firms to scale down operations to ensure employee safety.
The rate of new cases has slowed and the country’s copper output in January-May rose 3.2% from a year earlier, according to calculations based on data by Chilean copper commission Cochilco, but the worries remain.
“If the supply situation in Chile was not occurring, we would have seen a price contraction by now. Once this is priced in, we will likely see prices fall below ($6,000) again,” said analyst Natalie Scott-Gray of broker StoneX.