Kolkata: Supply chain disruptions have lead to an over 40% rise in global copper prices and a recovery in demand in CY2021 will be linked to pandemic control and normalcy, a research note on the copper sector has said.
In particular, mining restrictions due to the pandemic is estimated to have resulted in a sharp drop in production of copper ore during Q2 of calendar year (CY) 2020. This is progressively resulting in a shortage of the finished metal in the market and the prevailing situation may continue in the near term, which is fueling metal prices upwards, ratings agency ICRA said in its latest sector report.
“While the macro-economic uncertainties due to the pandemic have impacted global copper demand, resulting in a contraction in consumption by ~2.5% in Q1 CY2020, the supply-side impact of the pandemic on the other hand has resulted in a V-shaped recovery in prices,” ICRA noted.
Sharing more insights, Jayanta Roy, Senior Vice President, ICRA said: “International copper prices have increased by over 40% in the last four months, since reaching a three-year low of ~$4,600/MT in the month of March 2020. Incidentally, the current price level of ~$ 6,500/MT is the highest in the last 16 months.”
Contrary to prevailing macro-economic sentiments, copper prices quoted at the London Metal exchange (LME) are currently up by ~8% as compared to the levels prevalent a year ago. “While the macro-economic uncertainties due to the pandemic have impacted global copper demand, resulting in a contraction in consumption by ~2.5% in Q1CY2020, the supply-side impact of the pandemic has resulted in a V-shaped recovery in prices,” Roy added. The pandemic has severely impacted mining in both these countries and production is estimated to have contracted by almost 50% in Q2CY2020, ICRA said.
The agency estimates that the contribution per MT of operating miners has increased by ~80% in the last four months and by ~13% compared to the levels prevalent a year ago. Consequently, contribution for operating miners would increase by 50% in Q2 FY2021 as compared to Q1 FY2021 levels
ICRA also expects the consumption of copper to contract significantly by ~3-4% in the current calendar year. However, the supply side constraints may result in a similar reduction in copper production, which would keep prices elevated, going forward. While a recovery in demand is expected in CY2021, the overall situation would depend on how the pandemic situation pans out.