Copper prices set fresh multiyear highs on Monday over worries about possible supply disruptions following unrest in Peru and optimism about the launch of a Chinese futures contract open to international investors.
On the Comex market, copper for delivery in December gained 2.7% to $3.2625 a pound ($7,193 a tonne) amid heavy buying, with more than $8.3 billion worth of metal traded by mid-afternoon in New York.
Monday’s trading brings the bellwether metal’s recovery since the height of the covid-19 induced sell-off, which sent the copper price crashing to below $2.00 a pound, to more than nearly 70%.
Peru’s currency fell to a record low over the weekend amid political chaos and the largest protests in the capital Lima in decades. Experts have also warned that further upheavals threaten the fight against the coronavirus in the country, which, with a population of 32 million, has one of the world’s highest per-capita death rates from covid-19.
In a note, BMO Capital Markets said the unrest in Peru, the world’s number two copper producer behind Chile, while focused on the capital, could cause issues for copper concentrate logistics (plus other metals), should the situation escalate.
An indication of the scarcity of concentrate for prompt delivery, spot treatment charges – paid by miners to refiners – plunged to an eight-year low of around $45 a tonne last week, a 40% decline from the 2020 high hit in March.
TC/RCs were already under pressure from reports that China has unofficially banned Australian imports of concentrate amid a political row between the two countries.
The future of Chinese futures
As of Thursday, overseas investors will, for the first time, be able to trade copper futures on the Shanghai International Energy Exchange.
The new contract priced in yuan will exclude taxes and customs duty and will be delivered into bonded warehouses, helping the exchange compete better with the London Metal Exchange. The current contract on the Shanghai Futures Exchange is aimed at local traders.
Chances of the success of the new contract in establishing a new benchmark price in Asia are high given China’s dominance in copper markets. China accounts for more than half the world’s copper consumption, up from less than 40% in 2020 and only 12% in 2000.
Imports of unwrought copper were a staggering 618,000 tonnes in October, bringing the year-to-date total to 5.6 million tonnes, already a record annual high.
Imports of concentrate are also likely to set a new record this year, despite the scarcity on spot market, albeit only slightly up from 2019’s 22 million tonnes of shipments.