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Copper has just broken a record. Here’s what you need to know

(Bloomberg) – Copper rose to an all-time high this week and continued a sizzling rally that saw prices double over the past year. The previous copper record was set in 2011 at the height of the commodity super cycle sparked by China’s rise to economic heavyweight status – fueled by massive amounts of raw materials. This time around, investors are betting that copper’s crucial role in the global green energy transition will mean increased demand and even higher prices. Copper futures rose to $ 10,440 per ton in London on Friday. What’s the big deal with copper? Throughout human history, copper has played a pivotal role in many of civilization’s greatest advances: from the early monetary system to communal plumbing, from the rise of trains, planes, and automobiles to the devices and networks that back up the information the reddish brown metal is as electrical and thermal conductors mostly unrivaled and at the same time durable and easy to process. Today it is known to be a reliable indicator of trends in the world economy due to its wide range of uses in all areas of heavy industry, construction and manufacturing. The copper market was one of the first to respond to the emergence of the Covid-19 coronavirus in Wuhan. between January and March last year, prices fell by more than a quarter. Then, when China’s unprecedented moves to control the spread of the virus domestically yielded results, copper quickly recovered – and it hasn’t looked back since. But it’s not just China that is driving the rally. While the country accounts for half of the world’s copper consumption and has made a significant contribution to the rise in copper, demand there has actually weakened this year. Nevertheless, prices continue to rise. Why is copper rising now? This is partly due to signs of recovery in other major industrialized countries, with manufacturing output increasing sharply in countries like the US, Germany and Japan. But investors have also turned their attention to copper to bet that global efforts to reduce carbon emissions will mean the world needs a lot more metal, which is draining supply. Production of new mines can come in slowly as mines are difficult to find and expensive to develop. Electric vehicles contain about four times as much copper as conventional cars, and roadside chargers require large amounts of copper cables to keep them running. Bringing electricity from offshore wind farms into national power grids is also a copper-intensive task. Governments around the world have announced ambitious infrastructure investment plans, much of which include construction, green energy, or both. Do things that use copper get more expensive? Increasingly yes. Big manufacturers have hiked the prices of air conditioners and refrigerators in the past few months, and they warn that there may be more to come. Still, copper is often used in small amounts in complex consumer products, leading to a doubling in prices over the past year will not be nearly as painful for consumers as an equivalent increase in food or fuel prices. Similarly, the governments that are putting in place large spending programs may not be too concerned about a surge in copper alone. But with other commodities too, there are increasing signs that they are getting less bang for their buck than the cost of big-ticket items such as wind turbines are increasing. What does this mean for the economy? There are growing concerns that the broad rally from wood to steel will force central bankers to step in to halt inflation in commodity markets that are spiraling out of control. The stellar economic recovery that is fueling the commodities rally could stall as businesses suffer from higher interest rates, compressed margins and falling consumer demand. The central question for Federal Reserve policymakers – and Wall Street traders – is whether the broad spike in commodity prices will be temporary. Could the rally be canceled? With copper, there are some signs that spot demand is starting to start, especially in China, it’s cool, with some analysts and traders saying that today’s fundamentals don’t justify the record prices. Policy makers believe that the rise in commodity prices will prove to be short-lived as consumers focus their spending on services and experiences. As economies open up, demand for commodity-intensive goods such as second homes, electronics and home appliances will increase during the blocking can be seen, relieved. For copper today, however, it’s not just about strong demand. Indeed, there is still much anticipated spending on renewable energy and electric vehicle infrastructure. If so, it could change the outlook for copper consumption in countries like Germany and the US in the coming years due to a worldwide surge in demand from the green energy switch. According to Bank of America, $ 20,000 could even be possible if there are drastic problems on the supply side. The copper market itself could also face a major shift. Trafigura predicts that demand growth in China over the next decade will be dwarfed by rising consumption in the rest of the world, a dramatic reversal of the recent trend. This could help support a new “super cycle” in the copper market that has been driving prices up for years due to changing global demand. More articles like this can be found at Subscribe us now to keep up with the market’s most trusted business news source. © 2021 Bloomberg LP

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