Although the rise of the red metal began to appear since the end of March and intensified during the last two weeks, due to the improvement of the health situation in China, the current international context makes it very difficult to make any forecast, especially in the short term. term.
Since last March 23, copper registered its lowest value of the year (US $ 2.0945 per pound), the price of red metal has increased by 25% until today, supported by a progressive normalization of productive and commercial activity from China, the main global consumer of copper, favorable data that points to a recovery of activity faster than expected in the Asian giant.
Added to the above is the reopening of some major economies and announcements of higher-than-expected fiscal plans, particularly in Europe.
“The weakening of the dollar after the United States interventions to face the imbalances produced by the crisis and the increase in demand for more risky assets, such as commodities,” are another factor, as explained by Plusmining executive director, Juan Carlos Guajardo.
Guajardo adds that the increase in the price of raw materials is adjusted “as a result of the decrease in copper inventories in China, which reached their lowest level in 5 years (seasonally adjusted).”
Notwithstanding the successive increases, “investors have been cautious, which manifests itself in the fact that the long copper purchase positions have not increased significantly,” says Sonami’s study manager, Álvaro Merino.
Likewise, there is concern about the growing tensions between the United States and China and the deterioration of the longer-term global economic outlook.
“We must watch the behavior of the price with caution, because there is still a long way to go to observe a solid recovery in the price of copper,” emphasizes Merino.
Similar opinion is expressed by the Minister of Mining, Baldo Prokurica, who in the face of the successive increases in the commodity maintains that “today we must be cautious”.
Could these increases be projected in the short term?
Faced with the query about the possibility that the value of the red metal will continue to report a sustained increase in the coming weeks, protagonists of the mining industry give their vision in this regard.
For Mining Minister Baldo Prokurica, one of the keys is for the Chinese economy to continue showing signs of recovery in June. “In this way, we are likely to maintain and even improve the price of copper in the coming weeks,” says the head of mining. “The same should happen with the figures of economic activity in Europe and the United States,” says Prokurica, adding that “if it is possible to resume economic activities in those countries, without reactivating outbreaks of the pandemic, copper will probably return to levels of a trend that is clearly above US $ 2.5 a pound, but if that recovery does not occur, we cannot rule out setbacks in value. ”
For the CEO of Plusmining, Juan Carlos Guajardo, the main factor to consider when evaluating copper price prospects continues to be the health of the Chinese economy. “For now you can be optimistic if you consider indicators such as PMI, Caixin, or the Business Conditions Index which have been showing improvements. Although there are still weak points, such as the financial situation of China’s SMEs and their export levels, these are also likely to recover after the announcements of injection of resources for SMEs, the recovery of important business partners and eventual firms. of trade agreements (RCEP and TPP11) ”, details Guajardo.
However, the executive explains that there are risks that cannot be neglected as they could moderate -and even worsen- the prospects for the price of copper, such as: a new wave of Covid-19 infections, the deterioration in United States relations and China, and a slow economic recovery, or worse, the fall into an economic crisis due to solvency problems.
Meanwhile, the manager of Sonami Studies, Álvaro Merino, estimates that the degree of uncertainty is too much to make any kind of projection because “the increase in the price observed in recent days is not sustainable, due to the uncertainty “Regarding the speed of recovery in China, as well as the world economy, so that corrections are likely to occur and we see a market with high volatility.”
In its latest Copper Market Trends report released last March, the Chilean Copper Commission (Cochilco) updated the outlook for the price of copper for the years 2020 and 2021.
In this context, and considering the set of potential uncertainties in the current dynamics of global markets, which have been reflected in a significant drop in the price of metal during the first quarter, from the state agency they project for 2020 an average value of copper from US $ 2.4 a pound and US $ 2.9 a pound for the year 2021.
For their part, Plusmining affirms that to the extent that the risks that exist do not materialize, “there is a good chance that the price of copper will return to pre-pandemic levels, that is, around 2.8-2.9 US $ / lb ”.
More conservative is the projection of the Ministry of Mining where they point out that “if there are no unexpected changes in the Chinese economy or in the rest of developed countries, the value of the red metal has a high probability of reaching over US $ 2.5 a pound in the second part of this year ”.