What can we learn from the recent performance of the copper price?
Over the past week or so, to be sure, the price of the metal has fallen a little, as fears of a second wave have kept investors and traders in a cautious frame of mind.
But they haven’t stayed away altogether. Because yes, the price is lower now than it was a week ago. But on the other hand, it’s roughly flat on where it was a month ago, and if you take a 12 month view, the price is strong up.
At the end of September last year the metal was changing hands for around US$2.50 per pound. One year and one crisis later, copper’s at US$2.97.
In a way, this presents something of a conundrum.
After all, given that there’s been a period of very muted economic activity that’s still to some extent, continuing, it’d be easy to imagine there’d be much less demand for copper now than there was this time last year, when the global economy, and in particular the economies of US and China, were in rude health.
But a couple of different factors have come into play in 2020 which were absent in 2019. The first is that stimulus money pumped into the world’s leading economies is starting to be spent. One major destination for that new cash is infrastructure, and that means, amongst other things, copper.
It wouldn’t be an exaggeration to say that a useful proportion of the new cash magicked up by Modern Monetary Theory will make its way into the profit and loss accounts of the major miners as they look to produce the materials that will underpin the hoped-for recovery. Copper will be at the forefront of that.
Industrial profits growth posted another month of strong growth in August coming in at 19.1%, compared to 19.6% in July.
On the other side of the coin, the virus has also monkeyed around with supply. World copper mine production declined by 1% in the first half of 2020, with concentrate production down by 1.2% and solvent extraction-electrowinning production down by 0.4%, according to the International Copper Study Group.
Production stoppages in Peru due to the pandemic led to a 20% decline in mine output over the first half of 2020, including a significant decline of 38% in April-May compared to the same period of 2019. Mine production also declined in Australia, Canada, Mexico, Mongolia, and the United States.
That supply shortfall has led in turn to a drawing down of stockpiles at London Metal Exchange warehouses around the world. And with less copper around, although second wave sentiment may turn the price down a little, buyers can’t afford to bid too low or they won’t secure purchases.
Some countries have done well, though. In Chile, production has increased, and it’s interesting to note that while shares in London’s copper proxy Antofagasta (LON:ANTO) fell last week, over a 12 month time horizon they are up by more than 10%. If you measure the rise from the dive the shares took during the worst of the coronavirus chaos it rings in at an even more handsome 66%.
Similarly shares in Kaz Minerals (LON:KAZ), are up by more than 20% on the past 12 months, as production has continued unabated at the company’s Kazakh mines.
These aren’t bad gains for companies that provide the global economy with one of its primary constituents, and indeed the copper companies are currently doing well compared well with the more diversified majors like Glencore (LON:GLEN) and BHP Group PLC (LON:BHP), both of which have lost ground over the same 12 months.
All of which goes to show that in bad times as well as good, copper is a reliable place to park investments – a sentiment which bodes well for the next generation of up-and-comers, like Asiamet (LON:ARS), Castillo Copper (LON:CCZ)(ASX:CCZ), Hot Chili (ASX:HCH), Kincora Copper (CVE:KCC), and Central Asia Metals (LON:CAML).