Copper supply tightens as China gets back to work; why this is good news for the red metal

While China is getting back on its feet and reportedly ramping up to full capacity, the rest of the world is still trying to get back on its feet. And analysts reckon this could be a good thing for copper.

Copper has as fallen as low as $US4,000 ($6,319) per tonne thanks to a previous oversupply.

But with COVID-19 cutting back production, particularly quite significantly in South America, the supply side is becoming tighter.

And analysts believe supply will become even tighter, with production cuts hitting imports into China just as the country’s demand ramps up again.

China is the world’s largest importer of copper concentrate, which it sources from miners such as BHP (ASX:BHP) and Rio Tinto (ASX:RIO).

Bloomberg Intelligence says copper inventory at the Shanghai Futures Exchange is down 20 per cent since mid-March.

Smelting revenues have fallen in the last month too, by 18 per cent, as the crisis took hold.

‘We are bullish on copper prices’

On one hand the broader Chinese economy is recovering and factories are nearly back to full capacity. On the other hand it will struggle with shortfalls in its imports as the rest of the world battles to contain the virus and work its way back to business as usual.

Analysts think this paradox could help the market.

“With China going back to work and further stimulus likely, we are bullish on copper prices,” Guy Wolf, global head of analytics at brokerage Marex Spectron, told S&P Global Market Intelligence recently.

“China has to import a lot of raw materials and there are capacity limits at ports which could cause shortages in concentrates.”

Thomas Rutland, copper analyst at S&P Global Market Intelligence, expects a genuine recovery in copper markets in the second half of the year.

“We expect that mine closures and the resumption, albeit gradual, of economic activity in China will mean that total exchange copper stocks will not increase,” he said.