Chile: Copper prices gain ground in May
Average copper prices rose in May on the back of upbeat demand from China, as the economy gets back on track. On average, prices for the red metal logged USD 5,241 per ton (equivalent to USD 2.38 per pound), up from April’s USD 5,052 per ton (equivalent to USD 2.29 per pound). That said, prices were 12.3% lower than in the same month of 2019.
After four consecutive months of average copper prices falling, the red metal recouped some ground in May supported by recovering Chinese industrial activity and prospects of sustained demand ahead amid further monetary and fiscal stimulus from Beijing. In addition, the partial reopening of the U.S. and European economies also stoked investors’ appetite for copper, as demand for the red metal is often linked to global economic sentiment. Lastly, a somewhat cheaper U.S. dollar in May supported prices as well.
Although dislocated supply chains and mine shutdowns are weighing on copper output, demand for the metal is trailing behind supply this year as the global economy reels from the Covid-19 fallout. As a result, the recovery in copper prices is likely to lose steam in the coming months. Meanwhile, in Chile, revenues at state-owned Codelco plummeted a stunning 85.5% in the first quarter as a result of the collapse in demand. Moreover, the Chilean miner woes seem to be deepening in the second quarter as containment measures curtail output.
Reflecting on the outlook for copper, Wenyu Yao, Senior Commodities Strategist at ING, noted:
“We doubt risk appetite will return to copper and the broader industrial metals group in the near term. What could complicate matters for copper is an asymmetric growth trajectory in the global economy. Historically, moves in copper prices have been in line with manufacturing PMIs. During the 2008 financial crisis, copper bottomed along with PMIs from major economies. However, there is no guide for copper. More recent April [Chinese] data has suggested that manufacturing is still struggling to keep its head above water. Elsewhere, the indicator is pointing to a deep contraction.”