Biden Stimulus Adds Fuel to Copper Rally

Investors are ramping up wagers that the Biden administration's focus on economic stimulus and electric vehicles will turbocharge a monthslong climb in copper and other industrial metals.

Even though they slid alongside other commodities Friday, most actively traded copper futures are still up more than 2% so far in 2021 and near their highest level since early in 2013. They have been lifted by buoyant demand from China and wagers that an improving global economy will further increase consumption later this year.

Copper and other raw materials such as zinc and aluminum are the building blocks of construction, used to manufacture everything from computers to houses. That makes their prices extremely sensitive to momentum in the global economy and Chinese growth. China is the world's largest commodity consumer by far and is responsible for about half of global demand for copper and other metals.

After China largely contained the coronavirus, its economy has motored ahead of the rest of the world recently, making it a rare bright spot. That has sparked the rally in metals, pushing up copper 25% in the last six months as part of a vast rise in riskier markets.

In another sign of sentiment in metals markets, shares of copper miner Freeport-McMoRan Inc. have more than doubled in the last six months and are already up 20% so far this year. Many analysts look at the performance of mining stocks to gauge sentiment because they are more accessible to many investors than futures contracts, which expire every month and are more complex.

The gains come with investors expecting President-elect Joe Biden to increase stimulus spending to fight the coronavirus and to boost spending on everything from infrastructure to electric-vehicle charging stations. That could fuel even more bullish bets on global growth and raw materials, with major European economies expected to employ similar tactics exiting the pandemic.

"Activity in the U.S. and Europe should strengthen, heavily influenced by fiscal stimulus and an opening up of economies," Bank of America analysts said in a recent note. They raised their 2021 average price targets for copper, aluminum, nickel and zinc, boosting their projection for copper to $3.96 a pound, which would mean a 10% rally from current levels.

Copper fell 1.5% to $3.6105 a pound Friday, paring some of its recent advance. A stronger dollar was hurting commodities by making them more expensive for overseas buyers. Still, Bank of America also sees prices averaging $4.31 in the fourth quarter and getting closer to their 2011 record highs.

Another reason investors are piling into the space is that building the number of EV charging stations and green- energy projects needed to meet the world's climate goals will require huge amounts of raw materials in the years ahead.

Mr. Biden has said he wants to incentivize a faster adoption of electric cars. As part of a Thursday speech proposing nearly $2 trillion in spending, he said that next month he would outline a second proposal focused on economic recovery that would also use jobs and infrastructure as a tool to combat climate change.

"Given the increased focus on tackling climate change, the focus of government spending will be worth following as decarbonization is bullish metals," the Bank of America analysts said.

Net bets on higher copper prices by hedge funds and speculative investors are near their highest level since early in 2018, Commodity Futures Trading Commission show.

As demand for industrial metals has surged, supply for many remains constrained after years of underinvestment in new mines in response to a yearslong price slump. Additional mine shutdowns due to the pandemic and sporadic worker strikes in copper-producing nations like Chile are another factor supporting prices.

Many analysts including those at Jefferies see copper demand far outpacing supply and warn that the situation could get dire for raw materials users more quickly than anticipated.

"The market underappreciates the real risk that genuine shortages develop in some key metals markets," they said in a recent note titled "Eat a Peach, and Buy Some Copper" following the recent Georgia Senate runoff elections that gave Democrats narrow control of the chamber.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com

  (END) Dow Jones Newswires
  01-15-21 1048ET
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