China resurrects copper trade in 2021

Besides other disruptions, the 2020 pandemic is also credited with abruptly dragging down most of the commodity prices in the market. Copper and zinc, the two raw materials essential for any industrial activity, slipped double-digit places due to worldwide lockdowns. As many countries inch back towards normalcy and pledge greater commitment to harness clean energy (The U.S. recently approved $100mn for this pursuit), the recovery for this red metal looks plausible. However, it will be more accurate to laud one single nation for its revival- China.

China’s anomaly to the global copper trend can be observed from the fact that where mines in South America had to cut back on their production due to COVID-19 and India, too, had to shut down one of her plants after protests by the locals who feared for their health, turning her into a gross importer of copper from being its exporter; China achieved a nine-year-high production record this August.

Naohiro Niimura, partner at the Japanese consultancy Market Risk Advisory, believes that China is the reason for soaring prices of copper. Last November it crossed $3.3 per pound in the futures market for the first time since Feb 2014. That year Goldman Sachs, too, reported a 22% increase in its price. Bank of America and Morgan Stanley expect this trend to continue. The stimulus packages doled out by many developed countries and Chinas’ quick recovery from Covid-19,are the two reasons for this optimism. Investors are also quick to take advantage of the arbitrage between London and Shanghai stock rates.

Apart from being one of its leading producers, China is also the biggest importer of copper; it consumes half of the worlds’ reserves for this highly conductive metal which is used in manufacturing. The 2020 pandemic has stoked the export demand for Chinese home appliances and medical products in the developed nations. A shift to clean energy, which uses copper in the generation, transmission, storage, and consumption of electricity, has also assured its long-term price recovery.

China’s monthly imports of copper ingots have surpassed their figures from last year. However, many countries are now reviewing their commodity management agreements which is affecting its global supply. The reduced availability of copper is the third reason for the hike in its prices.

Lower grade quality and deeper deposits of the metal outweigh the increasing mining efforts around the world and are feared to tip copper into a deficit as per the Stifel financial analysis. While Chile’s environmental evaluation service, SEA, is set to vote for copper mine expansion; Peru, the worlds’ second largest producer of copper, recently had to stall its $530 million worth of export from one of its mines after protest from the locals. The latter’s upcoming elections in April shall seal the fate for two percent of the global copper supply.

In the SEA belt, South Korea, the fifth largest export economy in the world, accounts for 55% of China’s import, followed by Vietnam, Malaysia, Thailand, and Taiwan. While India had to halt its supply to China after her Sterlite copper plant was shut down, Pakistan filled this gap.

Recently, India introduced a requirement for government-issued license for every copper shipment. This move towards self-reliance is to check imports from China, Malaysia, Vietnam and Thailand, which earlier accounted for 45% of the total trade. Japan, which is gaining favor as a trading partner, is to make up for the dent in supply from China, after the latter clashed with the Indian troops at the Himalayan border.

In view of the growing copper trade and its dynamic supply agreements around the world, Merchant Credit and Guarantee Corporation Limited (MCG) with its wide network of banking and non-banking services, brings convenience and security to the class of investors.