Copper prices notched an 8-year high this week.
Marina Lystseva/TASS
Copper prices have a message for the world: expect to make a lot of wind farms, wires, electric cars and other staples of the green economy.
Prices of the metal pushed above $7,000 per tonne this week, the highest since December 2013. It was a sign not only that the economy is revving back up — promising recent vaccine trial data means the end of the Covid pandemic could be in view — but that investors are taking nations’ pledges to spend heavily decarbonizing their economies at their word.
Seemingly bottomless Chinese demand for the metal is the main driver of copper’s recent gains. China alone accounts for more than half of the world’s copper imports. So far this year, it has already imported more copper than it did throughout of all of 2019, according to data cited by Bloomberg.
Investors are likely also anticipating plans by both the US and UK to lavish money on the wind and solar industries and on electric grid infrastructure. A strong conductor of both heat and electricity, copper is widely used in electrical equipment, especially electronics and wiring.
In the US, although a potentially Republican-controlled Senate could curtail his policy options, President-elect Joe Biden has promised to spend billions on renewable energy and could make it an early priority as part of an infrastructure bill or an economic stimulus bill. In the UK, Prime Minister Boris Johnson, in an unusual move for a member of the Conservative Party, touted last week plans to turn the UK into the “Saudi Arabia of wind” and to spend more money on emerging industries such as clean hydrogen — even if some of the spending outlined in the plans was already anticipated.
Meanwhile countries in the European Union have already rolled out plans to dig their way out of a pandemic-induced slowdown by spending heavily on the green economy. And China itself has pledged in recent months to achieve carbon neutrality by 2060, something it won’t be able to do without investing heavily in everything from solar farms to electric car charging stations.
All these renewable energy- and infrastructure-heavy spending policy proposals essentially amount to a large bet on sectors of the economy that consume not just large amounts of copper but plenty of other metals, too. As analysts at Goldman Sachs wrote in a late October report, these big-ticket items “will likely create cyclically stronger, more commodity-intensive economic growth, that should create the elusive cyclical upswing in demand.”
Of course, the story of copper prices’ uptick is not solely one of demand, however. In April the Financial Times reported, citing analysts at investment bank UBS, that around 15 percent of the world’s copper mines were offline or operating at reduced capacity because of Covid-related supply disruptions. Mexico, for instance, was among the countries where non-essential businesses such as copper mines were forced to close or scale back — although copper output in other countries, including world-leading producer Chile, remained unaffected.
It remains to be seen whether all the nations now pledging to reign in their carbon emissions by splurging on electric cars and wind turbines will hold true to their word. So far, however, copper markets appear to be buying the hype.
