Higher copper prices could resume credit supply path in China

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Higher copper prices could resume credit supply path in China




Stock photo of copper cathodes in a warehouse in southern Shanghai


© Reuters / Carlos Barria
Stock photo of copper cathodes in a warehouse in southern Shanghai


By Pratima Desai

LONDON, Sep 8 (Reuters) – The zigzag rise in copper prices has left inventories historically low, and China’s consumption could strengthen further if the relationship between demand and credit availability in the largest consumer of industrial metals consolidates of the world.

Three-month benchmark copper on the London Metal Exchange (LME) hit a 26-month high of $ 6,830 a tonne last week, a gain of more than 50% since March, when economic activity around the world came to a halt. due to the confinements and restrictions derived from the coronavirus. A favorite measure of the availability of credit in China among analysts and operators is total social financing, which this year has increased by more than 10% per month.

“It is plausible. All that is needed is for China’s final copper consumption to rise to match the historical relationship with the credit boost, which has been weakened by the COVID-19 crisis,” said Max Layton, analyst at Citi.

“It would only take a balanced market this year – against our baseline scenario of a surplus of 400,000 tonnes – and a deficit of 300,000 tonnes in 2021 to reduce inventories to around 3.6 weeks pending consumption,” he added.

Citi’s best-case scenario for copper is a price of $ 7,500 per tonne in the first quarter of 2021 and $ 8,000 per tonne in the second quarter.

Copper inventories in London LME warehouses, at 76,550 tons, are at their lowest level since 2005 and are down 70% compared to May, when manufacturing activity in China began to recover and imports of the red metal rose.

China accounts for about half of the world’s copper demand, estimated at about 24 million tonnes this year.

“We believe that strong demand for copper from China should be sustained through the end of this year. Stimulus measures focused on infrastructure projects have been a key driver of strong consumption,” UBS analysts said in a note.

UBS expects the price of copper to end the year at $ 6,900 a ton and reach $ 7,100 a ton by the end of the first quarter of 2021.

(Report by Pratima Desai. Edited in Spanish by Marion Giraldo)

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