Starting mid-February, China started to hoard copper like there's no tomorrow. China typically uses its stock of copper this time of year but instead it is building stock, all whilst the price of copper surges. So what’s going on?
Copper is the backbone of the clean energy transition. Millions of feet of copper wiring are needed to build the more complex grids that can handle electricity produced by renewable sources and balance out their intermittent supplies.
So it makes sense that China would want to tighten its grip on supplies. China’s strategic stockpiles help it to influence prices on global markets and protect against shortages for its domestic industry.
But with similar stockpiling taking place in other commodities such as oil and iron ore, could China be preparing for a structural devaluation of its currency, stocking up on important commodities in advance? It would certainly spell good news for commodities across the board.
Although copper has rallied in recent months, there is a lot more left in the trade. Quite simply, there isn’t enough new investments in copper mines, which take many years – even decades – to build, which would explain BHP Group’s recent $39 billion takeover bit of Anglo American.
According to estimates, miners will need to spend more than $150 billion between 2025 and 2032 in order to fulfil the industry’s supply needs – so all roads point to an impending supply crunch. Indeed, Goldman Sachs expects demand to outstrip supply this year.
Happy days for BHP which is the world's second-largest copper producer.
