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Copper supply tightens on China heatwave


The heatwave which has settled across almost half of China’s territory has not budged for the last two months and according to scientists  it is one of the worst heatwaves on record. The temperatures have reached 40 degrees and above, but more importantly the territory that has been affected dwarfs any other heat events.

The lack of water has affected electricity production from hydropower and as the country struggles to cover essential power needs for the population, metals makers and other industrial producers have faced power rationing and had to restrict output. Aluminium, steel and copper have all been affected.

Production cuts are stacking up

The heatwave is adding a significant component to the already lower levels of supply. Copper more than any other metal closely follows the health of the global economy and as global GDP weakens so does the demand for copper. Since the start of the year several major producers said they expected to produce less metal this year, partially in anticipation of demand erosion caused by inflationary pressures, the dollar’s strength which makes copper more expensive in countries where the dollar is not the main currency and, in the case of Glencore, because of production issues and delays.

Earlier in the year BHP cut its copper production outlook for this year because of COVID related labour shortages, Vale cuts its output expectations to around 270kt from 330kt, down roughly 18% and said that sales in the first quarter fell 30% because of longer then expected maintenance at two of its plants.

Glencore cut the guidance for its own production because of technical issues at two of its smelters – the output was already 15% lower in the first half of the year. The Katanga mine in DRC faced technical problems and Glencore had already said first half output declined, adding that their expectations for full year production is down.

Overall, production cuts are stacking up and are building up a support level for copper prices which have started sliding on declining global GDP growth and lower demand. Also, stock levels in London Metal Exchange warehouses and in exchange-linked warehouses in China are significantly lower than 5-7 years ago.

Demand outlook for China boosted with economic stimulus

The supply and demand have been swinging up and down this year – a very normal state for the copper market – but the seesawing has been more pronounced than usual as producers try to catch up with the fast changing demand landscape.

The economic and industrial fallout of the latest wave of Covid in China and the country’s net-zero policy (which has since been slightly softened) has eroded the country’s normally very strong demand for base metals. In July China’s manufacturing Purchasing Managers Index, the key indicator of the health of its manufacturing slipped to 49, indicating a contraction and implying that there will be less demand for copper. But the government this week announced a 1 trillion yuan ($146 billion) stimulus package aimed at keeping the economy growing.

Copper ETFs from WisdomTree

Product Name ISIN Exchange Ticker Listing Currency
WisdomTree Copper
Hargreaves Lansdown | Interactive Investor AJ Bell Youinvest | Charles Stanley Direct | EQi
WisdomTree Copper – EUR Daily Hedged
WisdomTree Copper 1x Daily Short
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
WisdomTree Copper 2x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
WisdomTree Copper 3x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
WisdomTree Copper 3x Daily Short
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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