CRU Copper – Top Ten Calls of 2021

Covid-19 and economic recovery

Continued Covid-19 containment measures and vaccine rollouts, fiscal and monetary stimulus, and China’s 14th FYP. They will all shape the extent of the recovery in rest of world (~7%) and Chinese (~2-3%) refined copper demand next year.

Further stockpiling of cathode in China?

China built copper inventories of ~1.4 Mt in 2020, with the State Reserve Bureau (SRB) accounting for 600,000 t (est). There is the possibility that this continues in 2021. If so, cathode imports, which reached a record 4.7 Mt (est) this year, might stay higher than expected.

Green electrification

Covid-19 has accelerated the transition towards copper intensive sustainable energy sources and solutions. Cathode demand from EVs and renewables should grow by over 15% and exceed 1 Mt for the first time in 2021. However, that is still only around 5% of the total market.

Recovery in Chinese scrap imports

Delays to new regulations meant that Chinese copper scrap imports fell by as much as 50% in 2020. Overseas shipping companies remain cautious, but volumes should increase next year. Reduced availability elsewhere is likely to be offset by robust price-induced generation.

Chile and Peru politics under the microscope

In 2021, Chile and Peru, which account for ~40% of global mine output, have general elections. Chile is also seeking to write a new constitution. Chilean unions are likely to be emboldened by high metal prices as they begin a busy schedule of labour contract negotiations.

Lasting effects of Covid-19 on mine production

Miners’ recent Covid-19-enforced focus on current operations has potentially come at the expense of necessary maintenance, sustaining capex and stripping. We have upped our 2021 mine disruption allowance to 6%, although production is still expected to increase ~3%.

M&A, mine exploration and projects

The higher copper price is likely to see an increase in sector M&A, mine exploration activity and project approvals if past cycles are repeated. There is a raft of projects with a prospective mid-decade start up date that could get the go-ahead.

ESG pressures

The scrutiny of the copper supply chain will intensify in 2021. ESG issues including community relations, emissions, product quality and traceability, and water usage are increasingly at the forefront of mining companies’ and investors’ minds.

Tough times for the smelting sector

It does not look like 2021 is going to be much easier for copper smelters than this year. General security of supply, the China-Australia trade dispute and a spike in complex tonnes are all concerns. One positive is the relative lack of new Chinese smelting capacity.

Copper price levels and volatility

Bulls will argue the copper price rally is still in its infancy, given a weakening US$, low exchange stocks and a balanced market next year. Bears will point to 90th percentile cash costs for miners of just ~$5,000 /t. That uncertainty means 2021 could be a year of significant price volatility.