Base metals edge higher; Copper surges above $9,000 on shortfall concerns

Base metals stormed higher on Monday, with copper rallying above $9,000 a ton on bets that increased demand driven by the recovery from the pandemic will spur a historic deficit, putting the economic bellwether on course for a record run of monthly gains. Nickel topped $20,000 a ton.

Copper climbed as much as 4 per cent on Monday and is heading for an unprecedented eleventh monthly rise in February. Metals are on tear on expectations that post-crisis demand will outstrip near-term supply. That may both reinforce speculation about about a new commodity supercycle and stoke concern about rising price pressures as the world economy recovers from the pandemic.

The metal’s revival marks a turnaround from earlier in the month, when copper hit turbulence as investors signaled the need for more details about stimulus measures and on concerns about a softening in Chinese demand. But prices rose during China’s Lunar New Year as factory production was more buoyant than usual. Expectations for a revival in inflation have helped, too

“Market sentiment is heated right now in anticipation of a new cycle of global inflation,” Jia Zheng, an analyst with Goldtrust Futures Co., said from Shanghai. “Chinese investors returning from Lunar New Year holidays are waiting for more stimulus from the U.S. and Europe. Fundamentally, Chinese demand has exceeded expectations, as travel restrictions boosted consumption.”

The risk of faster inflation has prompted a selloff in bonds globally, with the benchmark 10-year U.S. Treasury yield jumping to the highest in about a year on Monday. A gauge derived from bond market pricing signals expectations for average inflation of about 2.2 per cent in the U.S. over the next decade.

Goldman’s View

Goldman Sachs Group Inc. reinforced its bullish copper stance last week, saying that China’s return from the week-long break had triggered another leg higher for prices. The market is facing the largest deficit in a decade this year, with a high risk of scarcity over the coming months, according to the bank.

There are already signs of emerging tightness on the London Metal Exchange, as spot contracts trade at a premium to futures. That pattern, known as backwardation, was a feature of the market during a record-breaking boom in Chinese demand last year, and suggests that spot demand is once again outpacing supply as exchange inventories run low.

Three-month copper traded at $9,052.50 a ton on the LME at 8:04 a.m. in London after hitting $9,269.50, the highest since 2011. In China, the SHFE contract hit the daily limit. Other metals rose, with LME nickel striking $20,110 a ton, and tin at the highest since 2011.

Copper’s rally has been a boon for suppliers. Jiangxi Copper Co., China’s top producer, gained as much as 20 per cent in Hong Kong to the highest level since 2012. In Australia, OZ Minerals Ltd. has more than doubled over the past 12 months, and shares in BHP Group and Rio Tinto Group rose on Monday.