Head of Alternative Data Sales @ Shipfix, Ex IHS Markit
In July 2020 Copper prices reached to a two year high following a rally that started in March of the year. This represents an increase of almost 40% and makes copper one of the most volatile commodities since the beginning of the year.
We see 2 potential factors that could explain this trend:
- Speculation vs. real demand: Copper prices are becoming increasingly subject to speculative pressure with traders betting on an important demand for copper from China in the coming month. Based on Shipfix data, the level of copper ore export does not corroborate the assumption of an increase in the real demand for the commodity and prices should soon see a correction.
- Production output restrictions: Demand for copper has increased out of China but the production and export of copper ore out of South America cannot follow the volumes demanded, partly because of the impact of COVID19 on the broader mining industry. This could explain why copper prices are taking off whilst the Shipfix Copper index remains stable. in this case too, we expect to see a correction in prices shortly after the Shipfix copper index picks up again. The timing for this correction is obviously still uncertain at the time of this post, but our Shipfix Copper index should provide a valuable predictive trading signal in this context.
Further reading on this topic:
Deloitte - Metals and Mining (April 2020): Understanding COVID-19’s impact on the mining & metals sector
Mining Journal (April 2020): 600,000t copper supply likely lost to COVID-19