China's demand for copper remains strong. This week's Chinese foreign trade data showed that copper imports rose 25% in March compared to the previous year, reaching a total of 552,317 tons (see chart).

Meanwhile, copper imports in the first quarter totaled 1.44 million tons, an 11.9% year-on-year increase and the highest amount for the first quarter since at least 2008.

This increased demand comes in a context where manufacturing activity expanded at a faster-than-expected pace in March after a pause during the Lunar New Year holidays, while activity in the construction sector, which consumes large amounts of copper, has also grown at a healthy pace.

The outlook for commodities, and copper in particular, remains favorable.

A recent GS report argues that, fundamentally, the copper market is currently unprepared for an environment of increased demand resulting from the green transition. As the most cost-effective conductive material, copper is at the heart of the capture, storage, and transport of these new energy sources. 

The market is already tight due to pandemic stimulus (particularly in China) that has supported a resurgence in demand while supply conditions remain stagnant, keeping inventories at historically low levels (see chart). In addition, a decade of low returns and ESG concerns have reduced investment in future supply growth, bringing the market closer to peak supply.

Although copper prices have recovered by 80% over the past 12 months, there have been no material approvals of entirely new projects. The coronavirus has only exacerbated this dynamic, creating enough uncertainty to freeze companies' investment decisions. This combination of rising demand and rigid supply has reinforced the current deficit conditions.

Estimates point to a supply gap of 8.2Mt by 2030, double the size of the gap that triggered the copper bull market in the early 2000s.

China copper imports (thousand tons)

Copper and inventories