By Will Horner and Amrith Ramkumar
Copper prices have risen to their highest levels in nearly 2 1/2 years, highlighting the strength of China's economic recovery along with investors' anticipation that the transition to electric cars will stoke demand for the industrial metal.
Most actively traded copper futures rose to nearly $3.20 a pound on the Comex division of the New York Mercantile Exchange Wednesday, hitting their highest level since June 2018 and bringing their rebound in the past six months to around 40%. Prices on the London Metal Exchange, the global benchmark, also have surged. Although they retreated Thursday, their weekslong rally signals that demand to build everything from smartphones to houses in China is accelerating more quickly than expected.
Other industrial metals such as aluminum and nickel also are climbing, lifted by the rebound in China, which is the world's largest copper consumer and accounts for roughly half of global demand. Unlike the U.S. and Europe, China has largely contained the coronavirus in recent months after the pandemic shut down its economy early in the year. That has allowed commerce and travel to resume lately, driving economic growth and fueling demand for copper and other industrial metals.
Because copper is closely tied to the Chinese economy, it is now outpacing other commodities such as oil and even the S&P 500 for the year as investors worry about a slowdown in the U.S. and Europe. Copper's strong performance underscores that China is the only major economy expected to grow this year during the pandemic and could continue to be a rare bright spot for global growth moving forward.
"It's quite incredible," said Edward Meir, a consultant focused on metals at brokerage ED&F Man Capital Markets. "They've really turned the corner."
Strong Chinese demand has been a boon for miners such as Freeport-McMoRan Inc., the largest copper producer based in the U.S. Shares of the company rose Thursday after it posted stronger-than-expected quarterly earnings, bringing their advance in the past six months to more than 135%.
Chinese imports of copper have risen sharply in the past four months, and it imported 62% more last month than in September 2019, according to data from China's General Administration of Customs.
Traders are looking ahead to a meeting of the Chinese Communist Party next week, with some speculating that leaders in the party could present plans to bolster stockpiles of the metal to drive infrastructure developments in the years ahead.
"Inventories are already critically low across the world," said Daniel Ghali, commodities strategist at TD Securities. "If China starts building copper stockpiles, that is going to withdraw a significant amount from the market."
Another force driving the gains is anticipation that China and other large economies will need large amounts of copper to increase adoption of electric cars and renewable-energy technologies. Building enough electric cars and charging stations to meet the world's climate goals could drive a major demand increase in the years ahead, analysts say.
Chinese President Xi Jinping pledged last month to make his country carbon neutral by 2060, raising expectations that the country's next Five Year Plan will heavily feature renewable energy projects. Investors also are pricing in a victory by Democratic candidate Joe Biden in the U.S. presidential race. He has put forth a $2 trillion climate plan that includes upgrading the electrical grid and rolling out more electric-vehicle charging stations.
"Copper will continue to be at the forefront of the need to expand the electricity grid," said Ole Hansen, head of commodity strategy at Saxo Bank. "If we are all going to be driving around in electric vehicles, we need to be able to charge them everywhere we go."
A weaker dollar and rally in the Chinese yuan also are driving some speculation on copper because a weaker U.S. currency makes it cheaper for overseas traders to purchase assets priced in dollars, analysts say. Chinese speculative investors can often drive sentiment in industrial-metals markets.
"Don't discount the speculative interest that commodities attract in China," Mr. Hansen said. "It is much more a case of expected future demand rather than actual demand."
Some analysts also caution that electric-car adoption remains relatively low and that global copper demand could turn sluggish again if the coronavirus dents activity in much of the world during the winter.
Traders also are monitoring strikes by mine workers in Chile, a key producer. The Candelaria mine in Chile, owned by Canada's Lundin Mining Corp., was forced to shutter operations this week amid a strike that has lasted for over two weeks. Workers at Chile's state-run Codelco, the world's largest copper producer, also have taken to the street this week to protest layoffs.
The prospect of lower supply as demand increases is boosting prices, particularly as some analysts anticipate a victory by Mr. Biden and Democrats winning control of the Senate. That combination could lead to a long-awaited U.S. infrastructure spending package that boosts copper consumption.
"I'm pretty bullish going into year-end," Mr. Meir said.
Write to Will Horner at William.Horner@wsj.com and Amrith Ramkumar at email@example.com
(END) Dow Jones Newswires