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Copper outlook bullish

April 14, 2021by Nicholas Kabaso
  • It was a relatively quiet day in Zambia amid a quiet domestic data card. On the base metals front, Copper is bid this morning, the red metal has been buoyed by the US CPI reading which points to a better growth dynamics out of the US, at least for now. Copper rose by as much as 0.2% this morning to $8912.50/tonne, we expect the bullish narrative to hold into the London open.
  • Meanwhile, the projections for the price of copper are exceedingly bullish with the likes of Goldman Sachs pencilling in a price of $15 000/tonne by 2025 driven by the energy transition which will be driven by the widespread adoption of green energy products. These products are known to require a significant amount of electronic circuitry which uses copper. Bloomberg reported – Moving the global economy toward net zero emissions remains a core driver of the structural bull market in commodities demand, in which green metals – copper in particular – are critical, analysts led by Nicholas Snowdon said in the note dated April 13. Global copper demand will see the strongest phase of volume growth in history during the 2020s and will increase by 600% by 2030 due to the green transition in Goldman’s base case. Market is unprepared for this, as supply is already tight; bank sees a long-term supply gap of 8.2m tons by 2030, twice the size of the shortfall that triggered the bull market in copper in early 2000s
  • The supply issues predicted for the red metal will lead it to potentially becoming a political powerplay in due course, with consumers of the metal such as China and United States jostling for position to secure supply chains. Robert Friedland the mining magnate has gone so far as to state that copper is going to become so crucial in electrifying the world that securing the supply chain will become a national security issue.
  • This does suggest the fortunes of Southern Africa improving dramatically over the coming years as investors pile in. What it will however take is good leadership across the region to make sure that the revenues received diversify the economies in the area and do not end up on wasteful expenditure.
  • In the US, a number of important banks will be reporting their earnings today and they always hold market moving potential. Investors will be looking for signs that the economic recovery is well under way and that the fiscal and monetary stimulus is generating a fresh credit cycle that would be synonymous with boom times. Plentiful liquidity and the dissemination of vaccines should see confidence ramp up and banks pro-duce some exciting earnings results through the months and years ahead.
  • Meanwhile, the US has paused its use of the J&J vaccine after some 6 cases of women under the age of 50 recorded some blood clots. The reaction appears to be similar to that of Astra Zeneca. It is unlikely that the rollout of the vaccine will be stopped. Rather, there may be accom-panying treatment for those taking the vaccine to minimise the possibility of any problems. Any stall is only expected to last a few days. In the broader scheme of things, 6 instances of problems against a backdrop of 7.2mn vaccines is a tiny proportion of the sample and the benefits of taking the vaccine will still far outweigh the risks.
  • On the data front US inflation rose more than expected yesterday. Headline inflation rose by 0.6% m/m and 2.6% y/y. The Fed has been pre-pared for the ramp up in inflation for some time and has made it possible not to respond mechanically by giving their mandate greater flexibil-ity to weather an inflation episode. Recent commitments by the Fed has made it clear that they will remain as accommodative as possible for as long as high inflation does not become entrenched.
  •  In the FX markets, the local unit continues to trade at a record low amid weak macro-economic fundamentals.  Meanwhile, stock markets are rising to fresh record levels, while bond yields are easing. Risk aversion is subsiding and the USD has come under considerable pressure. A deeper retreat is under way as the news out of the US and elsewhere steadily improves, investors will feel more confident in rotating towards riskier asset classes. Add to that the massive stimulus efforts in the US that are helping to fuel a record trade deficit and there are strong ar-guments for the USD losing even more ground. Technically the weekly chart is pointing to a deeper correction.
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Nicholas Kabaso

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