Analysts predict that “Dr. Copper ”will continue to rise as the China-led global economy shows signs of recovery from the coronavirus collapse, but are keeping a distance from long-term investors. Some stick to it.
The reference prices for copper on the London Metal Exchange hit a record high of USD 10,460 per ton in early May and are still above USD 10,000. The price has not reached this threshold for 10 years. On the other hand, it has almost doubled within a year.
Market analysts are not surprised.
Takayuki Homma, chief economist at Sumitomo Corporation Global Research, said the jump went “as expected”. “Sooner or later the price would have exceeded $ 10,000.”
The impact of the pandemic has little impact on the slowdown in demand, largely due to China's rapid recovery.
China is the world's largest buyer of copper and consumes half of the world's production. From January to April, the country's imports of unrefined copper and raw materials rose 9.8% year over year.
“There is little reason for copper prices to fall,” said Satoshi Emori, chief executive officer of Japanese investment advisor Emori Fund Management. Emori pointed out that copper is becoming an attractive product for investors, especially as large countries drive decarbonization. Decarbonization affects electric vehicles, wind farms and solar energy. It is expected that the demand of the place will increase.
Copper is mainly used as a material for electrical cables and is indispensable for infrastructure builders. It received the title of “Dr” for its exceptional ability to predict the health of the global economy.
China's recovery has seen the prices of many commodities rise despite the pandemic. In just one year, iron ore prices have risen 78% and base wood prices have tripled. The prices of other metals such as nickel and aluminum are also rising.
Many analysts say copper won't drop well below $ 8,000 per ton.
Mining companies remain cautious about doubling new developments as costs rise © Bloomberg
“Copper is currently looking for a new price equilibrium point,” said Honma of Sumitomo Corporation Global Research. He predicts that “the new price level for copper will continue to rise”.
His bullish view is not unfounded.
Goldman Sachs estimates that going green will increase copper demand by nearly 600% to 5.4 million tons by 2030. However, by 2030, the market could face a supply gap of 8.2 million tons.
New mine development has been limited for the past decade, and mining companies are still cautious about doubling new developments when costs rise.
Promising mines are in areas where large equipment is difficult to deliver. Increasing environmental awareness also leads to an increase in environmental costs. Even if a company starts exploring a mine now, it will take at least five years to produce something.
Meanwhile, mining and trading stocks are skyrocketing across Asia as demand for copper grows.
The share price of Marubeni, a Japanese trading company, rose more than 34% year-to-date, and non-ferrous metal manufacturers such as DOWA Holdings and Eneos Holdings have soared since the start of the year.
Similar trends can also be observed in other parts of the region. In South Korea, copper maker Punsan Corporation's shares rose more than 46% and Korea Zinc's shares rose 16% that year. China's Copper Mining Jiangxi Copper share price rose 47% in Hong Kong and Zijin Mining Group's share price rose 31%.
This article is Nikkei Asia, a global publication with a unique Asian perspective on politics, economics, economics and international affairs. The Asia300 section also describes the 300 largest and fastest growing publicly traded companies in 11 non-Japanese economies.
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Funds flowed into the shares of investment companies as the expectation of a long-term rise in the price of copper aroused investors' willingness to take risks. This is also part of the trend for investors to switch from rising growth stocks to outstanding stocks in anticipation of an economic recovery from the new coronavirus infection.
As a result, the mining sector has outperformed tech stocks over the past few months.
The share prices of large tech companies like Apple and Alibaba Group Holding are still in negative territory compared to the beginning of the year, and the share prices of the Japanese SoftBank Group and Taiwan Semiconductor Manufacturing Company are showing only a slight increase.
The MSCI ACWI Metals and Mining Index consists of 23 large and medium-cap stocks from developed and 27 emerging markets, up 20% this year and 4% on the MSCI ACWI Information Technology Index. It's much higher than the rise.
The copper exchange traded funds, which are plagued by inflows, also show a significant increase in yield.
WisdomTree Copper ETC has posted approximately 80% returns over the past year, with assets under management temporarily reaching a record high of over $ 900 million. The United States Copper Index Fund, which manages over $ 300 million in assets, also posted returns of over 80% over the year.
Japanese trading companies gained worldwide attention last year when Berkshire Hathaway, led by Warren Buffett, bought more than 5% of the shares of Marubeni, Sumitomo, and three other major dealers.
Electric vehicles require large amounts of copper cables to propel themselves © Wang He / Getty Images
Buffett, known as a long-term stock investor, said in a statement that trading companies “have many joint ventures around the world and are likely to do more in the future. … I hope that there will be opportunities for mutual benefit in the future. “
Retail companies are heavily involved in the real economy. In Japan, where resources are scarce, we supply energy, metals, everyday goods and various other products.
On the other hand, some long-term investors are reluctant to invest in sectors that are heavily dependent on economic conditions and market cycles.
Masafumi Oshida, Head of Japan Equity at BNY Mellon Investment Management said: [environmental, social and governance] Criteria”
As governments around the world begin to announce their decarbonization efforts, companies are under increasing pressure from activists and investors to tackle climate change. Mining companies are urged to move to cleaner manufacturing processes and increase transparency to reflect the value of ESGs.
Oshida, who is investing in the prospect of long-term appreciation for the company, suggests that mining companies have not yet adapted to this strategy. “It is also difficult to predict the profits of trading companies that operate in multiple lines of business,” he said.
Ah version of this article It was first published by Nikkei Asia on May 24th. © 2021 Nihon Keizai Shimbun Inc. All rights reserved.
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