As manufacturing in the world’s second largest market begins to shift into overdrive, this metal should climb higher.
Copper has been on a choppy rise since the end of March, gaining 23% since March 22.
The metal has been driven higher in part by hopes for recovery in the wake of the coronavirus crisis and further fiscal and monetary stimulus out of China.
While tensions have been mounting between the U.S. and China over the coronavirus pandemic and Beijing’s power grab in Hong Kong, copper sits at $5,452.65 per ton as of Thursday after plunging as low as $4,617.50 per ton in late March.
Copper is widely viewed as a barometer for confidence in the global economy given its broad applications, and Bank of America this week boosted its price target for the metal in 2020 to $5,621 per ton, while keeping its 2021 projection unchanged at $6,250 per ton.
“Global copper consumption could contract by 18% year-on-year in 2020,” Bank of America analysts said, “if global GDP drops by 4.2% year-on-year, the base case of our economists.”
The Bank of America analysts added that, “declines in purchases to that tune would be devastating for the red metal and also the wider mined commodities complex.”
But the analysts see a rebound of activity in China as a positive sign for the metal, and suggested that while Western economies may not completely mirror the rebound in China, easing lockdowns are likely to spur a rise in raw material purchases around the globe.
BMO Capital Markets said in a research note that data from China’s Ministry of Finance shows the value of special purpose bonds issued—destined for local government spending on infrastructure—has already surpassed the 2019 full-year total.
The firm said “new urbanization” refers to refurbishing old urban housing stock, railways, and airports, as well as upgrades to power grids and local utilities, while “new infrastructure” includes 5G networks, ultra high-voltage power grids, EV charging stations and data centers.
All of which will require massive amounts of copper as the company pushes into overdrive.
“We also note that the current recession is different to the usual downturns on various other metrics: the epicenter is in services, not manufacturing; governments are gearing up to implement remarkable fiscal stimulus packages, reflected in China’s NPC and Europe’s Next Generation EU initiative,” the Bank of America analysts said.