Because of its inherent utility, copper is among the most popular metals on the world’s markets today. With advanced applications in machinery, plumbing, electric vehicles, and wiring, copper plays a variety of vital industrial roles.
Throughout the COVID-19 pandemic, timely pieces of copper futures news brought heavy volatility to the market. In this blog article, we’ll take a look at these key market drivers and how they impact CME copper futures (HG) pricing.
Copper Supply-and-Demand Case Study: The COVID-19 Era
Similar to the broader commodity markets, copper prices depend on the evolving supply-demand dynamic. This correlation may have never been more apparent than during the onslaught of COVID-19 in March 2020 and the economic reopening of 2021. Here is a brief synopsis of how the COVID-19 economic shutdown and reopening served as crucial copper futures news items:
Jan. 1, 2020 to March 20, 2020: Demand Fears Drive Downturn
The first quarter of 2020 was a tumultuous period in the copper markets. A U.S. housing boom, record-low unemployment, and economic expansion fuelled industrial consumption. As a result, early-2020 CME copper futures prices held firm near 2019’s highs in the area of 3.0000.
Unfortunately for HG bulls, the onset of the COVID-19 pandemic in late February prompted serious demand-side questions. A global economic shutdown threatened to derail many industries, including mining, construction, and motor vehicle production. Subsequently, CME copper futures fell about 25 percent from Jan. 1, 2020 to March 20, 2020. In the auto industry, the demand-side fears about copper proved correct: For 2020, the global production of motor vehicles fell to 78,000,000, down 15 percent from 2019.
March 20, 2020 to Aug. 1, 2021: Economic Reopening Spikes Consumption
When the COVID-19 lockdowns began to be lifted in mid-2021, global consumption returned to the copper markets. The promise of new vaccines and receding infection rates fueled optimism that business-as-usual was soon to resume.
However, physical copper production remained depressed from lingering COVID-19 mine shutdowns. Accordingly, the following copper futures news items from the U.S. Geological Survey (USGS) contributed to a sustained rally in prices from the March 2020 COVID-19 crash through the first half of 2021:
- For 2020, U.S. copper production fell by 5 percent. COVID-19 shutdowns at the Chino Mine in New Mexico and Pumpkin Hollow Mine in Nevada were primary contributors to the pullback.
- Global production of copper fell from 20.4 million tons in 2019 to 20.0 million tons in 2020. The nearly 2 percent recession was largely attributed to COVID-19 mine shutdowns in Peru.
Given the lagging production and increased demand, CME copper futures posted a major rally from March 2020’s close to August 2021’s open. For the period, December 2021 CME copper spiked from 2.2830 to 4.4770, an epic gain of 96.1 percent.
What Copper Futures News Items Will Continue to Influence Prices?
As of this writing, three copper futures news items are positioned to influence HG prices for the foreseeable future. Here’s a quick look at each:
In the event that another round of global COVID-19 economic shutdowns is instituted, demand is certain to suffer. In the case of copper futures, prices are likely to fall over the short term.
Monetary policy, inflation, and USD devaluation are all key drivers of copper pricing. During the COVID-19 pandemic, the U.S. Federal Reserve mitigated the economic fallout by instituting exceedingly dovish monetary policy. If and when the Fed adopts a more hawkish tone, copper prices are likely to pull back from 2021 levels amid a stronger USD.
As electric vehicles go mainstream, the aggregate demand for copper will rise dramatically. It is estimated that electric cars require three times more copper for production than traditional models. For China alone, the pledged 100 percent transition to electric vehicles will require 2.38 billion kilograms of copper―an estimated 119 years worth of current global production. Simply put, as the electric vehicle revolution progresses, the industrial demand for copper will expand exponentially.
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