China and green energy drive copper prices to record high

Analysts predict that Dr Copper will continue to rise as China-led global economy shows signs of recovery from the coronavirus slump, but keep some distance from long-term investors. Some are sticking to.

Benchmark prices for copper on the London Metal Exchange in early May reached a record high of $ 10,460 per ton and have continued to exceed $ 10,000. The price did not approach that threshold for 10 years. To achieve that, it almost doubled in a year.

Market analysts are not surprised.

Takayuki Homma, Chief Economist at Sumitomo Corporation Global Research, said the leap was as expected. Sooner or later the price would have exceeded $ 10,000.

The effects of the pandemic have little effect on softening demand, primarily due to Chinas rapid recovery.

China is the worlds largest purchaser of copper, consuming half of the worlds production. From January to April, the countrys imports of unrefined copper and commodities increased by 9.8% year-on-year.

There is little reason for copper prices to fall, said Satoshi Emori, chief executive officer of Japanese investment adviser Emori Fund Management. Emori pointed out that copper is becoming an attractive product for investors, especially as major countries are promoting decarbonization. Decarbonization is for electric vehicles, wind farms and solar power. It is expected to boost the demand of the place.

Copper is primarily used as a material for electric wires and is essential for infrastructure builders. It earned the title of Dr for its extraordinary ability to predict the health of the world economy.

Chinas recovery has caused prices for many commodities to rise, despite the pandemic. In just one year, iron ore prices have risen 78% and timber base prices have tripled. Prices for other metals such as nickel and aluminum are also rising.

Many analysts say copper is unlikely to fall well below $ 8,000 per ton.

Mining companies remain cautious about doubling to new developments as costs rise
Mining companies remain cautious about doubling new developments as costs rise Bloomberg

Copper is currently looking for a new price equilibrium point, said Honma of Sumitomo Corporation Global Research. He predicts that the new price level for copper will rise further.

His bullish view is not groundless.

Goldman Sachs estimates that the transition to green will increase copper demand by nearly 600% by 2030 to 5.4 million tonnes. However, the market could face a supply gap of 8.2 million tonnes by 2030.

Over the last decade, new mining development has been limited, and mining companies are still cautious about doubling new development as costs rise.

Promising mines are located in areas where large equipment is difficult to deliver. Increasing environmental awareness is also causing an increase in environmental mitigation costs. Even if a company starts exploring a mine now, it will take at least five years to produce something.

Meanwhile, mining and trading stocks are skyrocketing across Asia as demand for copper grows.

The stock price of Marubeni, a Japanese trading company, soared by more than 34% from the beginning of the year, and non-ferrous metal makers such as DOWA Holdings and Eneos Holdings showed a significant increase from the beginning of the year.

Similar trends can be seen in other parts of the region. In South Korea, copper maker Punsan Corporations stock has risen by more than 46% and Korea Zincs stock has risen by 16% this year. Chinas copper mining Jiangxi Coppers share price rose 47% in Hong Kong, and Zijin Mining Groups share price rose 31%.

This articleNikkei Asia, A global publication with a unique Asian perspective on politics, economics, business and international affairs. The Asia300 section also details the 300 largest and fastest-growing listed companies in 11 non-Japanese economies.

Funds flowed into the stocks of affiliated companies as expectations for a long-term rise in copper prices gave investors a desire for risk. This is also part of the trend for investors to rotate from soaring growth stocks to circulating stocks in anticipation of economic recovery from the new coronavirus infection.

As a result, the mining sector has outperformed tech stocks in recent months.

Stock prices of major tech companies such as Apple and Alibaba Group Holding are still in the negative territory compared to the beginning of the year, and stock prices of Japans SoftBank Group and Taiwan Semiconductor Manufacturing Company show only a slight increase.

The MSCI ACWI Metals and Mining Index consists of 23 developed and 27 emerging market large and medium cap stocks, up 20% this year and the 4% recorded by the MSCI ACWI Information Technology Index. It is much higher than the rise.

Copper exchange-traded funds, which are plagued by inflows, are also showing a significant increase in returns.

WisdomTree Copper ETC has recorded a return of approximately 80% over the past year, with assets under management temporarily reaching a record of over $ 900 million. The United States Copper Index Fund, which has over $ 300 million in assets under management, has also recorded returns of over 80% over the year.

Japanese trading companies received worldwide attention last year when Berkshire Hathaway, led by Warren Buffett, bought more than 5% of the shares of Marubeni, Sumitomo and three other major traders.

Electric vehicles require large amounts of copper wiring to propel themselves Wang He / Getty Images

Buffett, known as a long-term equity investor, said in a statement that trading companies have many joint ventures around the world and are likely to do more in the future. I hope there are opportunities for mutual benefit in the future.

Trading companies are deeply involved in the real economy. In Japan, where resources are scarce, we supply energy, metals, daily necessities, and various other products.

On the other hand, some long-term investors are cautious about investing in sectors that are heavily dependent on economic conditions and market cycles.

Masafumi Oshida, Head of Japan Equity at BNY Mellon Investment Management, said: [environmental, social and governance] Criteria

While governments around the world are beginning to announce their efforts to decarbonize, companies are under increasing pressure from activists and investors to tackle climate change. Mining companies are being asked to move to cleaner production processes and increase transparency to match the value of ESGs.

Oshida, who invests in the prospect of long-term corporate value growth, points out that mining companies have not yet adapted to this strategy. Its also difficult to predict the profits of trading companies operating in multiple business areas, he said.