Copper tops US$8,000 as Goldman points to commodities super-cycle

[NEW YORK] Copper topped US$8,000 a tonne for the first time in more than seven years, boosted by continued optimism that US lawmakers are likely to deliver a much-needed virus-relief package soon.

Copper's fierce ascent to US$8,000 this week "is really boosted by hopes on the US stimulus talks", TD Securities analyst Ryan McKay said. "The China recovery scenario, a weaker dollar and green-inspired reflation wave have also lifted copper, especially with the Chinese stockpiling impulse having been bigger than initially thought and more strategic in nature."

The gains come amid calls by Goldman Sachs Group and BlackRock of a new long-term bull market. Prices are in the sharpest rally in more than a decade, with China's appetite for commodities and supply snags early on in the Covid-19 pandemic lifting copper about 80 per cent from its March lows.

Expectations for a deficit, the weaker dollar, and its role in green technology have also fuelled gains. Some banks and investors are now drawing comparisons to the spike in the early 2000s, when a jump in Chinese orders ushered in the last super-cycle for commodities.

"You have all the tell-tale signs of a super-cycle," Jeff Currie, head of commodities research at Goldman Sachs, told Bloomberg TV. He cited metals hitting multi-year highs, the weaker dollar, crude oil reaching US$50 and rising global liquidity.

The surge in metals prices has been a boon for miners, with shares in copper-focused producers including Antofagasta and Freeport-McMoRan vaulting to multi-year highs recently. In addition, production costs have been falling, setting the stage for a blowout year for profitability.

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Copper rose as much as 1.4 per cent to US$8,028 a metric tonne, the highest price since 2013, and settled at US$7,985 at 5.51pm on the London Metal Exchange. Other metals were mixed, with nickel slipping 0.2 per cent and aluminum rising 0.2 per cent.

BlackRock expects copper to hit new all-time highs in the upswing of the cycle, Evy Hambro, the firm's global head of thematic investing, told Bloomberg TV on Thursday.

China's relative success at containing the pandemic and optimism about global economic growth next year as vaccines are rolled out are fuelling gains across industrial commodities from iron ore to oil. It's been a remarkable turnaround for copper, which fell more than 50 per cent from a record high in 2011, trading below US$5,000 a tonne during a slump in 2015-16 and again earlier this year.

While many expect oil prices to rebound in the short term as the world begins returning to normal, there's more doubt about its long-term outlook as the energy transition gathers pace. Copper, on the other hand, is likely to benefit from the shift because of its use in electrical wiring.

In the near term, copper is getting a boost from tight supplies and strong demand. Top consumer China churned out a record volume last month, pointing to resilient consumption as the country emerges from the pandemic. Among signs of tightness, combined stockpiles tracked by top exchanges have slumped to a six-year low.

Still, copper's surge may be at risk of cooling. Citigroup warned earlier this month that the metal was "too hot to handle" following a recent rally, and that prices may retrace if gains aren't supported by the physical market.

On the technical side, LME copper's 14-day relative-strength index was at 77.4 on Friday and has largely remained in overbought territory for three weeks, even as prices continued to rise.

BLOOMBERG