Why can the price of copper quickly break through US$9,000/ton?

After the Spring Festival holiday, the  price  of  copper  , known as the industrial backbone,  has continued to rise, reaching the highest level in history set in 2011.

Copper prices  are generally regarded as an important indicator of industrial and commercial activities.  And in the case of very quiet market demand, why is the skyrocketing of raw materials more and more extreme? 

1. Copper prices are approaching historical highs  

Since the second half of last year, non-ferrous metals have made breakthroughs in succession. Among them, the rise of copper is particularly prominent. According to statistics, from mid-last year to February this year, copper rose by at least 38%. There are opinions that  copper prices  have reached their highest point since 2012. The macroeconomic background of the current rise in copper prices is more manifested in a rebound from the bottom of last year. 

2. Reasons for the price increase of copper

Why are   metal prices   rising so much? Is the subsequent price increase sustainable? How long can it go up?

1. Traditional needs

At present, the global new crown vaccination effect is obvious, the epidemic situation has been further controlled, and the economy has begun to recover. The demand for copper, aluminum, zinc, etc. is closely related to real estate and infrastructure. The consumption fields are concentrated in electricity, construction, home appliances, and automobiles. The real estate recovery in the United States is evident. The growth rate of single-family houses in the United States has surpassed the highest level of the housing boom in 2005. Biden's $ 1.9 trillion economic stimulus plan will also increase the demand for non-ferrous metals.

2. New energy development needs

New energy vehicles, photovoltaics, wind power, etc. contribute about 40% to the new demand for copper and aluminum

According to data, a traditional car needs about 23 kilograms of copper, while a pure electric car needs 83 kilograms of copper, 3.6 times that of a traditional fuel car.

Comparison of copper demand for different types of cars

The development of solar photovoltaic also needs more copper. 1GW photovoltaic installed capacity will drive the demand of 5,500 tons of copper.

Solar power project in Qinghai Province, China

New energy vehicles are a common development strategy of many countries in the world, and many policies have been issued that are beneficial to the development of the new energy vehicle industry.  The rapid development of new energy vehicles has driven the demand for metals such as copper.  On the other hand, photovoltaics is also an industry that has developed consistently in China, the United States, Europe and other countries or regions.  Global photovoltaic installations will maintain a rapid growth of more than 20% in the next five years, which will also stimulate metal demand.

3. Currency liquidity

According to reports from relevant agencies, the Fed currently buys at least US$80 billion in US Treasury bonds and US$40 billion in MBS each month; on February 24, 2021, Fed Chairman Powell stated that the central bank will maintain close to zero interest rates and purchase assets at the current rate until The U.S. economy has further recovered. In other words, the United States will still maintain loose liquidity. Although it is not as flooded as last year, it is still loose overall, which will support the trend of metal prices.

In addition to the above three factors, China’s copper price increase has also contributed to the fact that in the past 2020, the income of Chinese residents has decreased significantly, and work has been suspended for a long time in the first quarter. The total annual housing purchase expenditure accounted for 96.2 in the annual balance of urban residents’ total income and expenditure. %, the economic recovery cannot immediately increase the demand for raw materials to a level that has never been seen in eight years, causing supply to fall short of demand.

Therefore, the basic fact is that the price increase is a return to the true value of the renminbi under the huge amount of RMB M2 issued. For example, 10,000 yuan in 1978 is equivalent to 510,000 yuan today. However, based on credit expansion and currency distribution, 10,000 yuan before 1978 is equivalent to 14.47 million yuan today. 

3. How long can copper prices rise?

Relevant agencies believe that the copper price increase is expected to last at least until September this year, so non-ferrous metal prices are expected to maintain an upward trend driven by demand and liquidity.