TOKYO – Money is flowing into the markets for materials such as copper, silver and aluminum in increasing demand through the switch to renewables and electric cars.
The trend was sparked by strong demand in China, which brought the COVID-19 pandemic under control before other countries. Now, investors around the world are trying to get a head start on the so-called green cycle, poised to lift commodities markets over the long term.
Three-month copper futures on the London Metal Exchange, the global benchmark, hit a seven-year high earlier this month. With a price of $ 7,984.50 a tonne on Friday, copper futures are up about 80% from their March low when the coronavirus wreaked havoc in China.
Since the spread of infections took hold there, the Chinese government has supported the economy through investments in public works and other measures. “In China, there is a shortage of many industrial products, and this is spreading to materials,” said Naohiro Niimura, a partner at Japanese consultancy Market Risk Advisory.
China’s monthly imports of copper ingots and related products are well above the previous year’s levels in terms of volume. Meanwhile, many mines in South America and elsewhere have been forced to cut production due to COVID-19 infections.
Investors sharply increased their purchases after seeing this shift in the supply-demand balance. Net purchases of investment funds on the LME have reached a record level since the change in calculation method in 2018.
Another factor driving this influx into metals markets is the decarbonization efforts of governments around the world through reduced consumption of fossil fuels.
A car that runs on gasoline contains 15 to 25 kg of copper, more than before due to the increased use of electronics. But an electric vehicle contains around 80 kg of copper. In addition, copper is essential in infrastructure to stimulate the use of renewable energies.
“In the stock market, the S&P Global Clean Energy Index, which includes companies involved in renewables, has tripled from the spring low,” said Hiroyuki Takai of the Japan Power Team of the European Energy Exchange. “Similar investment funds are starting to pour into the commodities markets.”
Niimura believes Chinese demand is behind the surge in copper prices, not Biden’s so-called trade in buying green products in anticipation of the environmental policies of US President-elect Joe Biden. Still, “there is no doubt that metals that will benefit from higher demand due to the proliferation of renewables and EVs will be a major theme in commodity markets for the next decade or two,” a- he argued.
The prices of silver, which is used in solar cells, began to climb around July when Biden announced policies putting pressure on the environment. The gold-to-silver ratio has gone from an all-time high of over 120 this spring to around 70 recently due to the rise in silver and a correction in the gold market.
Other green products include aluminum, the demand for which is expected to increase for use in electrical infrastructure and as a lightweight material for automobiles; platinum, used in fuel cell vehicle catalysts; lead for batteries that store electricity produced from solar and wind energy; and nickel, which is used in automotive batteries.
The influx into commodity markets can partly be explained by investors looking for a place to place money whose supply has increased as monetary policy is eased to deal with the coronavirus. It remains to be seen whether demand for green commodities is actually increasing, but investors seem to have seen a new trend.