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Copper price rallies 4%, trading near 10-year high on supply/demand imbalance

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(Kitco News) - The copper market is firing on all cylinders, with the prices pushing above $4 a pound, its highest level since September 2011. However, some analysts are warning investors to use some caution as the rally looks a little unstable and overbought.

April high-grade copper futures last traded at $4.069 a pound, up 4% on the day. The base metal is up more than 56% since the start of the year. In London Markets, copper prices are trading at $8,940.50 a tonne.

A significant supply and demand imbalance in the copper market has driven prices to their nearly 10-year high. On the supply side, Kitco News reported last week that preliminary data from the U.S. Geological Survey (USGS) estimated global mine production of copper was 20 million tonnes in 2020, a drop of 2% compared to 2019.

The drop in supply comes as demand for the base metal picks up as optimism grows that the global economy will see a faster-than-expected recovery from the COVID-19 pandemic. Along with a pickup in economic demand, analysts note that copper is also benefiting from expectations for strong demand as governments worldwide look to develop more green energy technology.

"Investors are starting to appreciate that there is insufficient mine capacity to enable a rapid transition to a more environmentally-conscious global economy," said analysts at SP Angel.

The analysts said they see copper prices pushing above $10,000 over the next two years, "as demand rises for copper cabling for offshore wind farms, electric vehicle charging points and new housing and infrastructure projects."

However, not all analysts are convinced that the pace of the copper rally can be sustained. Daniel Briesemann, base metals analyst at Commerzbank, said that speculative investors are driving the rally. "That kind of momentum can shift very quickly," he added.

"New and ever higher price forecasts for base metals, and especially for copper, are coming thick and fast from many research firms at present. We do not share this euphoria as yet. In our opinion, the price rise has been driven to a large extent by speculation, which puts it on shaky ground," he said.

Casper Burgering, industrial metals economist at ABN AMRO, said Wednesday that copper prices could see some renewed volatility as economic growth continues to be impacted by the uncertainty surrounding the COVID-19 pandemic.

"The rising number of coronavirus cases in some parts of the world remains a cause for concern. As long as this uncertainty remains and lockdowns continue, prices for most base metals will remain both volatile and hesitant," he said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.