Riding on the back of a buoyant demand, copper prices have touched an almost 10-year high in view of bullish sentiment towards base metals post the Chinese New Year on February 12. It rose above $9,000 per metric tonne on the London Metal Exchange (LME) last Friday, for the first time in nine years, taking a step closer to its record high of $10,190 in February 2011.

Price of copper, which is traditionally considered a remedy for good health, is believed to be an indicator of economic health. Hence, the increasing price of copper is a sign that the global economy is on the route to recovery.

What is pushing up the prices?

The demand for copper has been on the rise and is expected to go further up with top copper consumer China getting back to business after a long holiday and optimism of a stronger global economic recovery in view of COVID-19 vaccine roll-outs.

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Apart from China's role and vaccination drives across the world, what is also adding to the demand for copper is the decarbonisation efforts by various governments to reduce dependency on fossil fuels. Copper is an important element in the renewable energy system, and the world’s gradual transition to renewable energy and electric vehicles will see the metal being used much more than earlier.

Goldman Sachs International has estimated that the prices will touch $10,000 a tonne by 2022, reported Bloomberg last December.

Could there be a supply crunch too?

While soaring prices indicate rising demand, a section of market analysts opines it may be due to tightening supplies. "You have to remember that commodities like copper are built by both the supply and the demand story. The supply story in copper actually is part of the problem here," Gina Sanchez, CEO of Chantico Global and chief market strategist at Lido Advisors had told CNBC in an interview last week.

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In a research report, Madan Sabnavis, chief economist at Care, noted that LME copper prices hit a nine-year high in January this year to $7,961 per tonne and the surge is due to a supply crunch of copper concentrates — a result of disruption in mining operations, courtesy the COVID-19 pandemic. The supply shortage coupled with rising demand, especially from China, is likely to keep copper prices high over the next quarter, he added.

The report added that the production of refined copper had dipped by 24.4 percent to 231.7 thousand tonne during April-December last year compared to the corresponding period in 2020 due to COVID-induced lockdown. The overall production of domestic refined copper plummeted by 39.5 percent year-on-year in the first quarter of FY2021.

What does it mean for India?

According to analysts, the prices of refined copper are expected to be in the range of $6,500-6,800 per tonne in FY2021 as compared to $5,923 in FY2020, and will have a big impact on countries importing the metal. India could end up paying 35 percent more for copper imports.

The supply crisis is expected to push up India’s copper imports, which had been rising sharply since Vedanta subsidiary Sterlite Copper’s plant at Thoothukudi was shuttered in May 2018. The Tamil Nadu government ordered its closure following widespread protests by residents who termed the factory a health hazard.

In 2017-18, India was among the top five exporters of copper cathodes, but then ended up becoming a net importer around the beginning of 2018-19, revealed data available with the Commerce Ministry.

Copper is next only to aluminium and steel in terms of its widespread use in sectors such as construction, telecommunications, transportation, consumer durables, and automobiles.

(Edited by : Jomy)

First Published:Feb 25, 2021 5:06 PM IST