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Copper price flirts with $7,000/mt as market eyes renewable demand

Highlights

UK pledges to increased wind power

Fund managers access cheap money

China likely big driver of renewables demand

The London Metal Exchange copper price flirted with the $7,000/mt level Oct. 21, as supportive rhetoric continued to reverberate during virtual meetings at the annual LME Week, chiefly focused on the renewables angle.

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Copper is widely touted as one of the integral 'green' metals that will power the renewable energy revolution as the world transitions from traditional sources such as coal.

During the Bank of Montreal's LME Week seminar Oct. 20, managing director of commodities research Colin Hamilton said copper was the "darling" of the market once again, as the world aims to build back in a sustainable manner after COVID-19.

Hamilton said the move higher was being powered by a handful of reasons, including targeted Chinese stimulus, unprecedented US stimulus, increased demand from the renewable sector and issues on the supply side.

Hamilton told the audience there had been a "short, sharp pullback" in industrial metals and then a rapid move higher.

He said the "changing energy mix" was largely positive for metals such as copper, which is used in electrical wiring, and BMO expected aggressive renewable infrastructure policy to come out of China's 14th five-year plan.

UK's renewables pledge

In the UK, the price outlook for copper got a shot in the arm recently when the government said it will increase investment in wind power and associated infrastructure.

Floating wind will play a major role in the UK's future energy mix, Minister for Business, Energy and Clean Growth, Kwasi Kwarteng, said Oct. 7.

A day earlier, Prime Minister Boris Johnson had set a 1 GW target for floating wind as part of the government's commitment to have 40 GW of offshore wind capacity installed by 2030.

According to the Copper Alliance, an industry body aimed at promoting the metal's use, turbines can contain 2.5-6.4 mt of the metal.

During its own LME Week seminar, brokerage Sucden Financial said copper will likely be well supported in the $7,000/mt area during the fourth quarter.

Geordie Wilkes, head of research at brokerage Sucden Financial, said that, on the whole, global stimulus measures aimed at shoring up economies, alongside the drive towards copper-intensive renewable energy technologies were all price-supportive.

Fund managers buying copper

Wilkes said fund managers with access to record low interest rates were using debt to place bullish bets on the price.

Coming out of the pandemic and associated lockdowns, the 'green' story continues apace, as investors seek profit from environmental, social and governance metrics.

Max Layton, managing director at Citi research, said of sustainability that the bulk of the questions he fielded from clients were all geared around the move toward a greener economy.

"[Copper is the] flavor of the day...copper is a standout across [the metals] complex. To me, [is the metal with the] highest probability of deficit."

Still, JP Morgan analyst Natasha Kaneva, said that although the bank was bullish on the outlook for copper -- with a peak price of $7,000-$7,500/mt near term, supply would recover from pandemic levels and head into a surplus of around 165,000 mt in 2022/23.

"The future is green...most likely 2025 [onward]," Kaneva said.