Goldman Sachs: Copper prices enter the commodity super cycle
According to a BLOOMBERG report, copper prices exceeded US$8,000 per ton for the first time in more than seven years. Goldman Sachs Group and BlackRock pointed out that because supply lags behind expected demand growth, a new long-term bull market has begun.
The market is experiencing the sharpest rebound in more than a decade. China's demand for commodities and the supply barriers that emerged at the beginning of the Covid-19 epidemic have caused copper prices to rise by about 80% from their lows in March.
Expectations about deficits, a weaker U.S. dollar, and its role in green technology also contributed to the rise. Some banks and investors are now comparing it to the peak in the early 21st century, when the surge in Chinese orders triggered the last super cycle of commodities.
Jeff Currie, head of commodity research at Goldman Sachs, said in an interview with Bloomberg TV: "All signs of the super cycle are obvious." He cited factors such as metal prices hitting multi-year highs, a weaker U.S. dollar, crude oil prices reaching $50 and rising global liquidity.
The price spike is a good thing for miners, and the share prices of copper-based producers including Antofagasta and Freeport McMoRan have recently soared to multi-year highs. In addition, production costs have been declining, creating conditions for a boom in profitability.
Goldman Sachs pointed out that a positive feedback loop between commodities, the U.S. dollar and emerging market economic growth has begun, and this loop has promoted the structural bull market in the past. The company stated in a report on December 17 that in the foreseeable future, demand will mainly focus on wealth redistribution and renewable energy, and because the supply of commodities other than renewable energy is still at a very low level, This increase in demand should keep the market tight for the foreseeable future.
Evy Hambro, BlackRock's global thematic investment director, said in an interview with Bloomberg TV on Thursday that copper prices are expected to hit a record high during the cyclical increase.
China’s relative success in controlling the flu pandemic and its optimism about global economic growth next year have driven the rise of industrial commodities ranging from iron ore to oil. This is a remarkable turning point for copper prices. Copper prices have fallen by more than 50% from their historical highs in 2011 and fell below US$5,000 per ton during the 2015-16 plunge, as did earlier this year.
Copper prices also benefit from more specific factors that make them attractive to long-term investors. Although many people expect that as the global economy begins to return to normal, oil prices will rebound in the short term, as the energy transition accelerates, doubts about its long-term prospects are increasing. On the other hand, due to the application of copper in wires, copper is likely to benefit from this transformation.
In the near term, tight copper supply and strong demand have boosted copper prices. Last month, the consumption of China, the world's largest consumer, hit a record high, indicating that as China recovers from the flu pandemic, China's consumption is resilient. In signs of tension, inventories on major exchanges, including the London Metal Exchange (LME), have fallen to six-year lows.
Cooling warning
However, soaring copper prices may face the risk of cooling. Citigroup Inc. warned earlier this month that after the recent rally, the metal was "too hot and unbearable" and that if the rise is not supported by the physical market, prices may fall.
Fitch Solutions stated in a report: “Investors may already be digesting a broader, deeper, and stronger economic recovery in 2021. This has increased prices that are difficult to maintain in late 2021. The risk of rising."
Technically, the London Metal Exchange (LME) copper price on the 14th relative strength index was 77 last Friday, and it has basically remained in the overbought range for three weeks, although prices continue to rise.
