The recent surge in copper prices has garnered significant attention from global investors, marking a pivotal development in the commodities marketOn April 19, the main copper futures contract in Shanghai exceeded 80,000 yuan per ton, reaching a remarkable high of 80,170 yuan, the highest level observed since 2006. Concurrently, copper prices on the London Metal Exchange (LME) also demonstrated impressive gains, closing at $9,876 per ton, which represents two consecutive days of near two-year highsAdditionally, Goldman Sachs has raised eyebrows by projecting a target price of $12,000 over the next twelve months.

Despite this exhilarating climb, it is important to note that there was a period of consolidation in the global precious and non-ferrous metals marketsAs of April 23, at 12:20 PM Beijing time, LME copper was quoted at $9,743.95 per ton, while domestic copper in China was priced at 78,540 yuan per ton

Nevertheless, the mid-term bullish sentiment from institutions remains unshaken.

Copper, often referred to as "DrCopper" for its ability to gauge economic cycles, is considered a crucial indicator of China's economic healthIn 2023, Chinese copper consumption accounted for a staggering 51.2% of global demandAnalysts are left pondering whether the soaring copper prices signal an impending economic recovery in ChinaAt the same time, global factors should not be overlooked; for instance, global manufacturing has firmly returned above the critical 50 threshold of the purchasing managers' index (PMI). Historically, copper prices have increased by an average of 25% within the twelve months following a bottoming-out in the global industrial cycle.

Industry insiders have remarked that the high copper inventories in China have left local companies and traders missing out on this recent price surge

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Some private equity firms, having chased higher prices recently, have opted to take profitsConversely, this latest climb in copper prices has been predominantly propelled by large-scale foreign capital, primarily betting on the recovery of the global manufacturing cycle, which has increased at an unprecedented speedExperts predict that, following a period of consolidation, there may still be room for further price increases.

The resurgence of global manufacturing has emerged as a significant catalyst behind the copper price rallySince the beginning of this year, a noticeable divergence has been observed between globally priced commodities— particularly precious and non-ferrous metals—and those priced within ChinaWhile the former have shown robust growth, commodities in the black category, such as coal and steel, have exhibited more sluggish performance.

The acceleration in copper prices began in March and has continued with substantial gains in both domestic and international futures

This upswing aligns with dominant external factors, including a rebound in the global manufacturing cycle and sustained strength in the U.Seconomy.

During a copper industry conference held by Shanghai Metal Market (SMM) on April 23, Liu Yang, head of business development for LME in China, pointed out that March saw the emergence of a "perfect storm" for copper prices, driven by both micro and macroeconomic factorsSince mid-February, prices have soared by 15%, with some LME products experiencing a staggering transaction volume growth of 47%, averaging 186,197 contracts per dayOver the past three months, copper inventories on the LME have fallen by 30%, reaching a six-month low of 121,375 tons, with New Orleans inventories dropping by 59% within the same period.

There exists a strong correlation between copper price movements and the global PMIAs of October 2023, global manufacturing PMI rebounded, and by March 2024, numerous countries had seen their PMIs return above the crucial threshold of 50, indicating a phase of recovery in the global economy

This shift has significantly enhanced the atmosphere for bullish copper price speculation; for example, global manufacturing PMI had hit 50 in January, and U.Smanufacturing PMI had, for the first time in March, surpassed the 50-mark, registering at 50.3 compared to 47.8 in February.

"Non-ferrous metals are internationally priced commodities, and the influx of foreign capital has pressured domestic players, leading to a rapid rise in copper prices," commented a trader from a futures brokerage"No one anticipated it would happen so swiftly, particularly since, unlike overseas markets, China's copper inventories are at a high level."

Research from China International Capital Corporation (CICC) indicates that the copper downstream primarily serves key sectors such as utilities (electricity), construction materials, and manufacturing (automobiles, home appliances, electronics, machinery, etc.). In contrast to black metals, which are largely influenced by domestic construction activities, copper pricing is more significantly impacted by global manufacturing demand and economic conditions

Typically, as global manufacturing PMIs rise, copper prices follow suit.

An analysis of the U.Smanufacturing landscape shows that inventory levels are comparatively low year-on-yearThis could signal an impending replenishment phase for U.SmanufacturersFurthermore, based on the latest statements from the Federal Reserve, there is an increasing probability that the U.Seconomy will experience a "soft landing" or, ideally, avoid a recession altogether in 2024. If this scenario unfolds alongside interest rate cuts, it could prove advantageous for copper and aluminum—both intimately correlated with industrial activity and sensitive to liquidity.

Goldman Sachs suggests that historically, industrial metal prices exhibit positive momentum following the bottoming of global industrial cycles, with copper and aluminum typically rising by 25% and 9% within 12 months of manufacturing PMI hitting its nadir

On a micro-level, more evidence is surfacing that supply chain destocking is shifting toward a demand-driven buying strategy, with an increasing green demand from the West, particularly in the United States.

While there are mixed opinions on the immediate ramifications of China's recovery on copper prices, many observers agree that the green demand spearheaded by China will play a critical role in supporting copper prices in the medium term.

Since the outbreak of COVID-19, the rapid growth of new industries, especially in electric vehicles, photovoltaics, and wind energy, has bolstered copper demand significantly, whereas the demand for steel has seen relatively limited growthThe ongoing advancements in artificial intelligence and the expansion of China's semiconductor industry are expected to generate substantial electricity needs, in turn driving demand for both power generation and grid infrastructure, further exacerbating the demand for copper.

According to data from Wood Mackenzie, China's copper consumption accounted for an impressive 51.2% of global demand in 2023, with refined copper consumption reaching a striking 56.2%. A breakdown of global copper consumption patterns from 2022 highlights a stark distinction between global and Chinese usages: the former leans more towards construction, while the latter is centered around electrical networks

Data published by the International Copper Study Group (ICSG) points out that the majority of the increase in global refined copper consumption since 2022 has been attributable to China, with consumption in other regions actually contracting slightly.

Goldman Sachs also noted a significant resurgence in China's demand for green metals, spurred by the cyclical recovery in Western manufacturingAs it stands, the demand for copper and aluminum in China surged by 12% and 11%, respectively, in the first quarter of the year, continuing last year's vigorous trend, underpinned by robust contributions from renewable energy investments (solar energy up by 80%, wind energy by 69%) and a 4% annual increase in investments for electricity networks from January to February.

With the seasonal buildup of copper stocks in China now behind us, Goldman Sachs has revised its copper price target to $12,000 per ton, illuminating expectations that inventory consumption will accelerate in the second quarter, thereby potentially widening the gap in Western inventories as import needs grow later in the year.