Commodities shine in global recovery expectations
I came across a piece on Bloomberg intelligence on copper earlier this week and it is worth taking a look at the market as it does stand to gain strongly on global recovery. The key question though is how much of the run is already over since Copper has been rallying strongly since spring last year.
- Big picture
According to Bloomberg Intelligence copper's risk to reward looks balanced for 2021. They see consensus price forecasts playing catch up to spot prices, and improvement in fundamentals. However, they see this as mostly priced in from copper's 50% rebound from March 2020 lows.
They see a supply-demand balance in modest deficit in 2021 with downside risks from a Chinese stockpile reduction and a delay in stimulus deployment in OECD countries. Further supply-side disruptions could inflate pricing
Copper demand by sector
The main demand for copper comes from construction and electrical infrastructure. The main risk to copper demand for 2021 remains to be weak consumer sentiment and any delay in stimulus packages. Bloomberg intelligence also have put down their central case for a 5% demand increase in copper. Look at the blue coloured bar on the right hand side of the graphic below for the central demand case.See chart below for demand breakdown
With a Democrat win in place and a large stimulus package coming that should provide enough boost for copper medium term. However, weak consumer demand remains a worry on rising lockdowns. 4.000 should keep copper futures capped in the near term, but copper remains attractive for buyers on any deeper pullbacks. The 3.300 level looks a decent level of support as marked below.
