A Research on "Impact of Covid -19 Pandemic on Copper Prices"

The COVID -19 Pandemic had a dramatic impact on Copper Prices. It was responsible for hitting Copper prices to record highs in May 2021.

Copper is the third most consumed metal after Steel and Aluminum. Copper has widespread usage in power generation and transmission, manufacturing machinery, and is more than 65 percent used in building construction and electronics. Due to its usage and demand in various sectors, Copper is seen as a bellwether for the general state of the economy.

The COVID - 19 Pandemic had a dramatic impact on Copper Prices. It was responsible for hitting Copper prices to record highs in May 2021. In order to prove this, our RIM Research team has done research using Granger's Causality test with Global Corona Cases and Copper Prices, representing that Covid - 19 Pandemic has an impact on Copper prices. We have also analyzed the Copper mine production data and Copper Import-Export data from Trading Economics.

Granger’s Causality Test

The Granger causality test is a statistical hypothesis test for determining whether one-time series is useful for forecasting another. If the probability value is less than an alpha level, then the hypothesis would be rejected at that level. We use the Grangers causality test to determine that the Covid-19 Pandemic has a vast impact on Copper Prices.

Source: wikepedia.org

When time series X Granger-causes time series Y, the patterns in X are approximately repeated in Y after some time lag (two examples are indicated with arrows). Thus, past values of X can be used for the prediction of future values of Y.

Result of Grangers Causality Test (US Covid Cases and Copper Prices)

The row represents the response (y) and the columns indicate the predictors (x). If a given p-value is < significance level (0.05), for instance, let’s take the value 0.0071 (row 3, column 2), we can reject the null hypothesis and conclude that US_Daily_Cases_x Granger causes close price_y. From the Granger’s Causality test, we can conclude that COVID-19 Pandemic have the impact with Copper Prices.

Grangers Causality Test Results (Global Covid Cases & Copper Prices)

The row indicates the response (y) and the columns are the predictors (x). If a given p-value is < significance level (0.05), for example, let’s take the value 0.0012 (row 3, column 1), we can reject the null hypothesis and conclude that Global_Daily_Cases_x Granger causes close price_y. By means of Granger’s Causality test, we can say that COVID-19 Pandemic have the impact with Copper Prices.

Graphical Representation of Covid Cases Vs. Copper Prices

Graphical Representation of Copper Base Metal Price (2019 - 2021)

Impact of COVID-19 Pandemic on the Copper Mining Industry

Chile is the world’s largest Copper producing nation with 5,746.1kt (thousand tonnes) output in 2020, down by 0.7%, due to a reduction in the operational workforce under a plan implemented against COVID-19. Covid-19 caused widespread shutdowns of Copper mines in 2020, disrupting global Copper production.

The International Copper Study Group (ICSG) estimates mine production contracted by 1% in the first nine months of 2020. This is because mine supply is largely concentrated in Latin America, a region hard-hit by the pandemic. For example, in Peru, Copper mine production dropped by 16.5% year on year over January-September 2020.

Graphical Representation of Peru Copper Production

Source: Trading Economics 

Meanwhile, the COVID-19 outbreak led to the temporary closure of the international port, which has impacted the Copper trade between the countries, particularly during the first half of 2020. Due to the outbreak of COVID, there arises production cut in Chile and supply disruption for Copper. This automatically pushes up the Copper Prices.

Copper as an essential material in construction, electronics, and engine manufacturing, demand for copper was particularly at risk due to closures of manufacturing and construction plants announced across the Middle East, Europe, and the United States in early 2020. Copper Prices rose gradually since April 2020 to make good the pandemic-inflicted losses by early June and supersede their previous year-high in mid-July.

What Factors are Driving Up Copper Prices?

Impact of Covid-19 Pandemic on Copper Prices

Covid-19 played a major role in determining Copper Prices in 2020 than Copper fundamentals. However, demand growth for Copper is slowed in 2020, due to an anticipated demand slump from China in the first half of the year, as a result of the coronavirus outbreak. Copper prices dropped to significant lows of up to $4774 per ton in March 2020 when the Coronavirus spread globally.

Covid-19 caused widespread shutdowns, including Copper mines, disrupting global Copper production. Supply chain disruptions in Copper mines and the demand- and supply-side implications have pushed Copper Prices to seven-year highs. In 2021, while the entire world recovered from the Covid-19 pandemic, the demand for Copper from factories increased. As a result of this, Copper prices reached an all-time high in May ($4.80/lbs) this year. I have listed few more causes that are driving Copper prices to record highs.

Copper’s Demand in Electric Vehicles

Expectations are for global Copper demand to rise to more than 26 million tonnes in 2025 from around 23 million tonnes this year, and much of that growth will come from renewable energy and electric vehicles. The usage of Electric Vehicles (EVs) is rising across the world as many countries worldwide have set a timeline that all the vehicles have to be electrified to reduce their carbon footprint.

CRU Analyst Charlie Durant expects total Copper demand from the electric vehicle sector to rise to nearly 1.5 million tonnes in 2025 and to 3.3 million tonnes by 2030 from under 500,000 tonnes this year. He also added, "Electric vehicle demand for Copper will account for 10% of total demand in 2030. The renewable energy sector could see copper demand rise from around 650,000 tonnes in 2020 to over 1.3 million tonnes in 2030."

Electric vehicles require more than double the Copper of an internal combustion engine vehicle. With more EV commitments from car companies, Copper’s demand will drive up the Copper prices in the future.

Huge Demand for Copper from China

The demand for Copper from China has picked up from the second half of 2020 as the country begins its construction and manufacturing activities. China accounts for around half of global Copper consumption. "China, the largest Copper consuming nation, moving into a period of seasonally strong demand post their winter break kept Copper Prices elevated," said Yash Sawant, research associate, Angel Broking.

China is profoundly reliant on imported Copper concentrates and refined Copper to meet the demand from the manufacturing and infrastructure sectors. In 2021, while China continues to outperform the rest of the world in its economic recovery from the Covid-19 pandemic, Copper’s demand remains high.

To mitigate the risk of future supply disruptions, China’s State Reserve Bureau and some provincial governments are securing - and even stockpiling - strategic supply of Copper, according to industry experts at Fast markets’ Copper Analysts Panel webinar. Stockpiling is expected to continue even at higher Copper prices. So, China is positioned to have a direct influence on Copper Prices in 2021.

Will the Copper Price Keep Going Up?

In 2021, Covid-19 Pandemic and Copper’s demand from China has created a greater influence on Copper prices. Copper prices soared to record highs this year, May 2021($4.80/lbs. in the CME Futures) on expectations of global economic recovery and fast-rising demand after a year of stagnation amid the coronavirus pandemic.

Copper Prices hit record highs and as of October 5, 2021, Copper is trading at

COMEX (US) Copper Prices: 4.2390 USD/lbs

MCX (India) Copper Prices: Rs.717.70/Kg

SHME (China) Copper Prices: 68350 Yuan/Ton

And Copper Scrap Prices are

US Copper Scrap Prices (Copper No.1): 3.56 USD/lbs

CA Copper Scrap Prices (No.1 Copper): 4.72 CAD/lbs

South Indian Copper Scrap Prices (No.1 Copper): Rs.563/Kg

              Watch the Latest Video of Copper Scrap Price Prediction - US

In a recent report, Goldman Sachs said it expected the price of the red metal to surge to $15,000 by 2025. According to a note titled, "Copper is the new oil," the bank believes annual demand for Copper will surge 900 percent from current levels to 8.7 million tonnes by 2030, reports said. As Goldman Sachs words, we can expect Copper prices to reach more than $15,000 in the future due to Copper's extensive demand in the field of Electricity Generation, Transmission, Infrastructure, Energy Storage, E-Vehicles, and Renewable Energy Sources.

According to the International Energy Agency, around 45% of the demand for Copper will come from clean energy technologies in 2040, up from just 24% in 2020. From this, it's understandable that the total demand for Copper by clean energy technologies is estimated to see a three-fold increase by 2040. So, this will put pressure on Copper prices. As Copper’s demand is at the peak, Copper Prices will climb up automatically. Therefore, the Copper Price will keep moving higher in the coming days.

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