Following the U.S. Presidential election, copper recorded its best week in five years as the election of Donald Trump as US president boosted hopes for more consumption in the western world.
During the first 10 months of 2016, little changed with copper as concerns about slowing growth in China and ample supplies kept the price somewhat stagnant. However, copper has exploded into life during November.
Following Donald Trump’s victory, the metal reached a 17-month high as his election increased hopes that he will spend billions of dollars on infrastructure, which could lift demand for metals used for building and manufacturing. That could add to the demand expected from China.
As Trump told reporters the day after the election, “We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals … We’re going to rebuild our infrastructure, which will become, by the way, second to none.”
Copper, used extensively in wiring and power grids, has risen more than a $1,000 a tonne in November.
Donald Trump’s promise to spend around $10 Trillion in 10 years on infrastructure, which is expected to be financed by the private sector through municipal bonds, triggered another wave of buying as the copper market had already rebounded prior to the election.
According to analysts, copper and other metals were being bought as part of a wider “reflation trade” with investors betting that growth and inflation will rise.
China accounted for virtually all the increase in copper consumption between 2000 and 2014, but traders are now more optimistic about intensity of use in the western world if Donald Trump carries through his plans to spend $10 Trillion over a decade on infrastructure.
According to analysts at Goldman Sachs, President-elect Trump’s promise to spend $100 Billion per year is equivalent to around 7 per cent of China’s fixed-asset investment in infrastructure in 2016.
Questions remained about how much copper will be used, given the metal is mostly used in wiring.
Max Layton, a Goldman analyst, said “Timing wise, a US infrastructure stimulus is unlikely to kick in until the third quarter of 2017 and would in our view have the largest effect on steel, zinc, and nickel demand.”
Gains in copper have also been fuelled by heavy speculative buying by Chinese investors, in addition to the results of the US presidential election.
Copper has been one choice and steelmaking ingredient iron ore another. Coal had been a popular play until policymakers introduced curbs to cool prices and speculative buying over the past couple of weeks.
Bank of America Merrill Lynch analyst Michael Widmer says “we saw a lot of Chinese buying coming through — it was orderly until then and now it’s become a little bit disorderly … Views over a potential fiscal stimulus in the US just brought more buyers into the market and drove prices still higher.”
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