Analysis of the reasons for the strong rise in copper prices in 2021

       Since the copper price bottomed out in March last year , the LME copper price has risen to a nearly 10-year high as China's economy has recovered from the new crown epidemic, investors are also optimistic about the recovery of other global markets, and the demand for clean technology and green energy industries. .

　　On March 23, 2020, the LME copper price hit US$4626.5/ton, which was also the lowest point since September 2016, as the new crown epidemic severely impacted global industry and investor confidence. Since then, the LME's three-month copper has risen nearly 100%, the highest level since August 2011.

　　China's rapid recovery from the new crown epidemic has provided strong fundamental support for copper market demand. In July last year, time-of-use copper prices had rebounded from multi-year lows back to their pre-epidemic levels. Other major economies have also recovered from the epidemic, coupled with the further strengthening of Chinese demand, pushing copper prices higher in the bull market in the third and fourth quarters of 2020. The successful development of the new crown vaccine allowed the bull market in the copper market to continue into January and March. After returning from the Spring Festival holiday on February 18, Chinese market participants did more overall, which further boosted the price of copper to break through the $9,000 mark.

　　The weak dollar also benefits copper prices . At the end of 2020, the U.S. dollar fell to its lowest level since March 2018 and remained weak for the first two months of 2021. The U.S. dollar index, which measures the exchange rate of the U.S. dollar against a basket of currencies, has fluctuated between 89.218-91.593 since the beginning of December last year.

　　A weaker U.S. dollar has given support to copper priced in the U.S. dollar, because it means buying in other currencies becomes cheaper.

　　From the supply side, short-term and long-term supply constraints also supported the bull market in copper prices in the past year. In the short term, the output of Peru, the world's second largest copper producer, has been affected by the new crown epidemic. Peru's copper output in 2020 was 2.15 million tons, a year-on-year decrease of 12.5%, because the Peruvian government implemented blockade measures in the first half of last year that affected the total output.

　　In 2020, the copper output of Chile, the world's largest copper producer, is basically unaffected by the epidemic. However, the labor negotiations scheduled for this year and the return of the new crown epidemic may bring further resistance to copper supply in the near future.

　　In the past year, affected by the epidemic, copper stocks in LME registered warehouses have also fallen to a very low level, putting additional upward pressure on copper prices. On September 9, 2020, the total LME copper inventory hit a low of 73,425 tons, which is the first time since 2010 that it fell below 100,000 tons.

　　The International Copper Research Group (ICSG) predicted in October that the global output of mined and refined copper will increase to 21.15 million tons and 24.81 million tons respectively in 2021. In 2021, the demand for refined copper will also increase to 24.81 million tons, and the oversupply will be about 70,000 tons, which is still tight overall. Compared with the potential growth in demand, supply may remain tight in the long term, as few large new projects are planned to be put into production.

　　The copper industry also benefited from the government's policy to support the green energy transition. Governments around the world have pledged to achieve zero carbon emissions by the middle of this century; the United States' re-entry to the "Paris Climate Agreement" also marks that President Biden's government has paid more attention to addressing climate change. China's new five-year plan (the final draft will be announced next month) and the European green agreement both emphasize the environment and renewable energy, which may require the use of copper technology.

　　Many global mining companies have recently been optimistic about potential copper demand. The British-Australian company BHP Billiton (BHP) said last week that its demand outlook is optimistic because it is increasingly affected by the global electric vehicle trend.

The strong rise in copper prices in the 　　past year has not been unique, and the prices of other commodities such as nickel, tin, aluminum and iron ore have soared to multi-year highs.