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Copper (LME) resumed its bull run last week and further spiked to $9,436/t this morning. According to economists at ING Bank, macro tailwinds, lingering risks to supply and a cyclical uplift that is driving demand could see upside risks to copper prices dominate over the second quarter.

Upside risks dominate in the second quarter

“We think upside risks to prices could dominate over 2Q21. The current inflationary environment and negative real rates are tailwinds to the commodities sector, and copper stands out thanks to its constructive fundamentals, especially the strong narrative of medium to longer-term demand linked to energy transition. A further weakening in the greenback could well provide a further boost.”

“From a fundamentals perspective, factors that have been fuelling the bullish optics still have room to run in the short-term. Firstly, there hasn’t been a meaningful improvement to mine supply yet, and the situation is still vulnerable to disruption. Secondly, demand recovery from major economies outside of China riding the ongoing restocking cycles, and pent-up demand should remain a key theme throughout the year. The new wave of COVID-19 cases from some European countries should not derail the overall demand recovery path.”

“Macro tailwinds, combined with copper’s constructive fundamentals and a ‘green’ narrative in medium to longer-term demand, could see upside risks dominate for copper during 2Q21, suggesting the red metal could be on a parabolic run, testing previous highs. However, this strength may dampen as the current restocking cycle approaches an end and slowing credit growth in China weighs on investment demand, which may become more evident in the second half of this year.”