China’s public works plans and major global efforts to go green have spurred trading. Currently, money is flowing into the markets for various materials, including aluminum, silver, and copper on their increasing demand. All that is happening since there is a growing trend where users are shifting to electric cars and renewable energy.
That trend was triggered by massive demand in China that brought the COVID-19 pandemic under control ahead of the other nations around the world. Currently, investors globally are trying to get ahead of the curve in the renowned green cycle. The cycle is poised to lift the commodity markets in the long term.
3-month copper futures on the London Metal Exchange, which is the global benchmark, hit a 7-year high earlier this December. The price is currently hovering at $7,984.50 per ton and the copper futures have gained around 80% from a low in March when the health crisis was wreaking havoc in China.
Ever since the country managed to contain the spread of the pandemic, Beijing has been propping up the economy via public works investment and many other steps. One partner at Japan-based commodities consultancy Market Risk Advisory, Naohiro Niimura, said:
“In China, there is a shortage of many industrial products, and this is spreading to materials.”
China’s monthly imports of copper ingots and related products are currently above year-earlier levels with regards to the volume. In the meantime, many of the mines in South America and elsewhere around the world have been forced to cut output as a result of the COVID-19 infections.
Investors also increased buying steeply after noticing this change in the supply-demand balance. Net buying by various investment funds on the LME increased to a record high since the calculation method changed back in 2018.
Decarbonization Process
Another factor that may be responsible for this inflow into the metals markets is the decarbonization efforts by different governments around the world via reduced consumption of fossil fuels.
A vehicle that runs on gasoline includes around 15-25 kg of copper, more than it did before due to the increased use of an assortment of electronics. However, the electric vehicle features almost 80 kg of copper. Additionally, copper is important in infrastructure for enhancing the use of renewable energy.
Hiroyuki Takai who works with the European Energy Exchange’s Japan Power Team commented:
“In the stock market, the S&P Global Clean Energy Index, which is comprised of companies involved in renewable energy, has tripled from the spring low. Similar investment money is starting to flow into commodities markets.”
Niimura thinks that Chinese demand is responsible for the surging copper prices, not the so-called Biden trade of openly snapping green products in expectation of the environmental policies of US President-elect Joe Biden. He highlighted:
“Still, there is no doubt that metals that will enjoy stronger demand due to the proliferation of renewable energy and EVs will be a major theme in commodities markets for the next decade or two.”
Other Metal Markets
Silver prices, the metal that is used in the manufacture of solar cells, began to climb around July when Biden made public his policies putting massive weight on the environment. The gold-silver ratio has come down from an all-time high of over 120 this spring to almost 70 recently as a result of silver’s surge and a significant correction in the gold market.
Other green commodities like aluminum whose demand is expected to grow for use in power infrastructure and as a lightweight material for automobiles; platinum are used in the catalysts of fuel cell vehicles. Lead is used for batteries that store the electricity that is generated from solar and wind power, while nickel is used in automotive batteries.
The major inflow into commodities markets can partially be explained by investors looking for a place to put money whose supply has increased as monetary policy is loosened to deal with the COVID-19 pandemic. Whether the demand for green commodities grows is yet to be seen, investors seem to have noticed a new trend.
