Dr. Copper - Mixed Signals
“The term Doctor Copper is market lingo for this base metal that is reputed to have a Ph.D. in economics because of its ability to predict turning points in the global economy” (Investopedia). Bloomberg describes copper as “the third most widely used metal, after iron and aluminium, and is used in highly cyclical industries such as construction and industrial machinery manufacturing”.
From a March 2020 pandemic-driven low of $2.3 per lb, copper has since traded between $3.5-$4.5 per lb. A sharp rally in late May took it to $5.0 per lb before the recent sharp retreat to $4.0 per lb (all data September 2024 contract).
Can we attribute the recent decline to the continuing lacklustre economic performance of the world’s second largest economy (China) or has the more recent swoon been driven by fears of weaker growth in the world’s largest economy (USA)? Over the last six years China’s exports of refined copper have averaged 21,500 tons per quarter. In the second quarter of 2024 exports rocketed to 157.8 tons – a sevenfold jump – suggesting China’s “behaviour” is impacting the price of the metal.
According to the IEA copper accounts for circa 40% of minerals used to manufacture solar (rare earths are the balance) while for onshore and offshore wind copper accounts for circa 30% and 50% respectively (with zinc the other significant metal).
We asked Gemini to test the assertion that ‘China's energy transition is responsible for around 18% of total domestic copper demand, with electric power and transportation collectively responsible for 60% (versus 50% just five years ago)’. Gemini deemed the assertion plausible and that it aligned with the broader trends in China's economy and energy sector.
In other words, twice as much copper is used building the transmission network than building the solar and wind. An earlier Daily commented on China’s outsized solar and wind ambitions with projects currently under construction accounting for almost two thirds of the global total. Generation is one thing, getting it to the end user (transmission) is a completely different matter. China’s imports of copper ore and concentrate have more or less doubled over the past decade but, unless it is financially driven, the recent sevenfold increase in exports of refined copper is difficult to comprehend.
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