September 14, 2022

China’s copper demand could finally be on the mend. Evergrande, which is one of China’s largest real estate developers, has restarted construction on 668 of its 706 stalled projects, according to Bloomberg. China’s peak construction season usually lasts until the end of October, so this welcomed news comes just as metals demand for construction normally falls.  According to Bloomberg, China’s property sector has been hit in recent months as home prices and sales volumes have fallen. Many home builders, including Evergrande, stopped construction on new projects, thereby weighing on copper demand.

This expected pickup in demand by Chinese real-estate developers could tighten global supplies, leading to higher prices. Due in part to lower Chinese demand, LME Copper prices have dropped precipitously in recent months. Likewise, the forward curve has also plummeted. Compared to three months ago, LME Copper’s forward curve has shifted vertically lower by nearly $1,900/mt. Also, the forward curve is now backwardated, meaning that futures prices are lower than spot. This could provide a better opportunity for end-users to hedge future needs into 2023 and beyond by buying swaps, as this strategy would establish a maximum copper price. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (9/14/2022)

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