On 4 December 2020, the LME cash price hit its highest level since March 2013, closing at US$7,742/t. (By 10 December, that dropped back to $7,712/t.) Copper has charted an unlikely trajectory through 2020, notes Roskill.

Copper prices plunged 27% to a low of US$4,617/t in late March as the global impact of COVID-19 became apparent, but copper stabilized and then began to rise, completing a full recovery to its January starting point by the end of July.

Copper prices since 1 Jan 2020

Prices trended moderately higher through the third quarter but then gained in momentum from October onwards, aided by the depreciation of the dollar after the US election. Copper has rallied 68% in the eight months from its March low, making it the most resilient of the LME base metals.

Copper prices since 1 Jan 2000

Roskill says that four factors have buffeted the market during 2020:

• The negative impact on demand from the COVID-19 recession;

• Interruptions to international trade flows in scrap caused by a combination of low prices, operational problems and strict Chinese import quotas;

• Mine production disruptions in the Americas caused by infections and new workforce safety protocols; and

• An unexpectedly strong resurgence in Chinese cathode buying for scrap replacement, improving consumption, restocking and stockpiling purposes.

Based on preliminary data from Chinese Customs, Chinese net imports of refined copper jumped by 45% y-o-y, or 1.3Mt, to 4.2Mt in Jan-Nov 2020. This more than offset a 24% y-o-y, or 0.3Mt, drop in net imports of secondary copper (scrap, ingot and flakes) to 1.0Mt, and a 1% y-o-y, or 50kt, dip in concentrate imports to 5.4Mt.

Meanwhile, net imports of anode and blister leapt by 32% y-o-y, or 0.2Mt, to 0.9Mt to compensate for the shortage of feedstock at smelters and refineries.

Underlying Chinese consumption is actually performing much better than most analysts believe, Roskill said. This is due to a combination of sequential gains across most end use markets, an unprecedented and incentivized acceleration in copper-intensive renewable electricity wind power generation projects, and the start-up of multiple new large-scale wire rod plants that has expanded the industrial consuming base.

Even factoring in these gains, Roskill estimates there has been a 0.7Mt build in ‘unreported’ stocks, held by producers, consumers, traders, provincial stockpiles and strategic stockpiles controlled by the secretive State Reserve Bureau. Who holds this inventory matters little—the important aspect is that the metal China imports is rarely re-exported, so these volumes have now been permanently denied to Rest-of-World consumers. This is the main factor that has driven up copper prices far beyond where fundamentals would reasonably dictate.

In 2021, an improvement in mine supply and a normalization in the scrap market will be balanced by stronger demand in the Rest-of-World and a deceleration in Chinese growth. The difficulties in striking a balance between these opposing forces is no doubt contributing to the extended annual negotiations on cathode premiums and TR/RC terms, Roskill said.