China demand, historically low stocks boost copper

Copper prices rose on Friday as optimism about demand in top consumer China, a balanced market, historically low inventories in London Metal Exchange approved warehouses and a lower dollar triggered fresh buying.

Benchmark copper on the LME was up 0.9% at $6,723 a tonne at 1111 GMT. Prices of the metal used widely in the power and construction industries touched a 26-month high at $6,830 a tonne earlier this month.

Analysts at CRU estimate Chinese demand dropped 15% in the first quarter due to COVID-19. "But there has been a strong recovery in the second quarter. We expect Chinese refined copper demand will grow 1-2% this year."

"Copper should remain supported in the mid $6,000s. Much of the risk in the short term comes from non-copper specific factors, namely the dollar, further fund inflows, government stimulus measures or the progression of Covid-19."

DEMAND: Strong Chinese copper demand can be seen in its imports, which rose to a record high of 762,210 tonnes in July. Imports were up 38% from a year earlier in the first eight months of 2020 at 4.27 million tonnes.

DOLLAR: A lower US currency makes dollar-priced metals cheaper for holders of other currencies, which could boost demand.

It also raises costs for miners in other currencies, which means higher prices are required to protect margins.

INVENTORIES: Stocks of copper in LME warehouses at 75,550 tonnes are at their lowest since 2005, when the commodity price bull run, triggered by accelerating Chinese demand, took off.

Also fuelling worry about supplies on the LME are large holdings of warrants and cancelled warrants -- metal earmarked for delivery and so no longer available to the market -- at nearly 50% of the total.

This is why since early July cash copper has traded at a premium to the three-month contract.

OTHER METALS: Aluminium was down 0.2% at $1,786 a tonne, zinc gained 1.6% to $2,454, lead rose 0.7% to $1,896, tin was flat at $18,000 and nickel gained 0.8% at $14,955.