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Home >Markets >Mark To Market >Rising copper prices suggest that a strong economic revival is underway

Copper, the traditional, age-old remedy for good health has also remained a significantly important economic health indicator. Rising copper prices, helped by strong order flows, indicate that the global economy is recovering fast.

Copper prices have been rebounding since the easing of restrictions imposed to contain the spread of coronavirus. With vaccine related developments picking up pace, copper prices have now scaled multi-year highs. Copper prices on the London Metal Exchange not only have gained more than 18% from early-October lows, but are up almost 65% from the troughs in March. The rise in copper prices is not an aberration but is being led by firm demand, especially from China, the world’s largest consumer of commodities. “China’s onshore market has tightened faster than our earlier expectations, driven by exceptional end-demand trends in the second half," said analysts at Goldman Sachs International. The ex-China refined copper market also has destocked just as western demand recovery emerges, said analysts.

As demand recovery is supporting copper prices, analysts expect the momentum to continue. Goldman Sachs International is anticipating a further rise in copper prices to $10,000 a tonne by 2022, from the current levels of slightly above $7,600.

Price rise
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Price rise

Even crude oil is starting to gain some momentum after being range-bound for months and there could be scope for more gains said analysts. Rising prices of steel, iron-ore, and coal, as well as that of other industrial commodities, suggest that there is recovery in the global manufacturing sector.

Among other economic indicators referred to often is the gold-to-silver ratio. Gold, favoured as a safe haven amid uncertainties related to the covid-19 pandemic, has now started seeing corrections, with vaccine related news flow. Silver will be a preferred commodity and this also may mean that an industrial turnaround is being anticipated, said experts.

Nevertheless, it may be a bit premature to jump to conclusions on the strength of the recovery, especially since high liquidity is driving asset prices up across the board. “A weaker dollar and strong Chinese currency are favourable for metal price inflation and Chinese stocking ahead of festivities (Chinese New Year) could also be driving commodity prices, “ says Nitin Bhasin, head of research at Ambit Capital.

In India, while many sectors have rebounded sharply, some sectors are still lagging. Important levers for economic growth such as job creation are dependent on investment. Private capex remains postponed while government investments are slow. In terms of gross domestic product, though FY22 will see strong rebound on a low base, complete normalization is expected only by FY23.

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