Bank of America ups copper forecast as red metal rises for a second straight month

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Copper prices closed out a second consecutive month of gains on Friday, driven in part by hopes for a recovery and further fiscal and monetary stimulus from China, its number one consumer.

Although tensions between the U.S. and China over the coronavirus pandemic and new Hong Kong security laws capped gains toward the end of the month, copper priced on the London Metal Exchange closed out Friday’s trading day at $5,332.25 per ton.

The red metal’s spot price closed out May down more than 13% for the year-to-date, having plunged as low as $4,617.50/t in late March as the pandemic spread throughout the world.

Copper prices are widely seen as a barometer for confidence in the global economy owing to its broad array of end uses.

Bank of America analysts on Friday increased their price forecast for copper in 2020 by 5.4% to $5,621/t, while keeping the 2021 projection unchanged at $6,250/t.

BofA metals analysts said that while demand had collapsed due to the coronavirus pandemic, a rebound of activity in China was a positive sign for copper.

“Global copper consumption could contract by 18% year-on-year in 2020, if global GDP (gross domestic product) drops by 4.2% year-on-year, the base case of our economists,” BofA said in a note Friday.

“Declines in purchases to that tune would be devastating for the red metal and also the wider mined commodities complex.”

However, they questioned whether falls in purchases to such a degree were realistic, and suggested that while Western economies may not completely mirror the rebound seen in China, the easing of lockdown measures would likely facilitate a rise in raw material purchases around the world.

“We also note that the current recession is different to the usual downturns on various other metrics: the epicenter is in services, not manufacturing; governments are gearing up to implement remarkable fiscal stimulus packages, reflected in China’s NPC and Europe’s Next Generation EU initiative,” the note said.

In a press conference Friday, U.S. President Donald Trump announced that the U.S. would revoke Hong Kong’s special status due to the mainland’s increased control over the city.

However, markets took relief when Trump did not vow to pull out of the “phase one” trade deal signed by Washington and Beijing in January.

Optimism has built around the potential for further Chinese stimulus after Premier Li Keqiang told the National People’s Congress last week that Beijing has more fiscal room to stimulate the economy if necessary.

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