Copper’s runaway price caught many bysurprise as it rose dramatically through November before easing backsomewhat this last week. It gained an incredible 19%, finishing the month atUS$2.61/lb. The red metal -- considered abellwether of worldwide financial health -- has been mired in the aftermath ofthe commodity super-cycle, generating negative performance for more than fiveyears. It had also previously been the outrider as other base metals such aszinc, now at an eight-year high, made spectacular gains in 2016.

After price declines each year since2011, copper traded within a range of US$2.10/lb. and US$2.30/lb. for much of2016. It finally broke out in November, scoring one of its best monthsever. Nevertheless,analyst outlooks remain depressed. Most predict that a sustained price breakoutto above $2.80/lb. will have to wait until 2019/2020, when demand starts tooutstrip supply as a result of under-investment in newmines. Panelists participating in the LatinFocus Consensus forecast prices toaverage US2.16/lb. in 2016 and US2.23/lb. in 2017. In recent years, copper has beenheavily affected by massive debt restructuring at senior mining companies andongoing concerns about demand from China, which consumes 48% of the world'scopper supply, as its growth rate moderated and it began to maker thetransition to a consumer-driven economy. Many have cited the surprise win ofPresident-elect Donald Trump as the trigger of copper’s renewed strength, butthe rise was underway before the November 8th presidential election. Certainly, thepresident-elect’s campaign pledge to spend US$500 billion on new infrastructurehas driven positive sentiment, but according to BMI, the infrastructure planwill provide less than 1% of additionalglobal copper demand growth over the next four years. Price gains in November have unquestionably been fuelled by speculation. But they have also benefited fromupbeat economic data and infrastructure plans in both China and the U.S., whichcould help reignite demand for copper.

Accordingto traders and analysts, much of the renewed interest in copper has come fromhedge funds, as well as speculative buyers in China. This has raised concernsthat the market could turn rapidly if investors withdraw. According to brokerage firm MarexSpectron, the share of the LME copper market owned by bullish speculatorsrecently reached its highest level since 2006. Goldman Sachs analysts also cautioned in a recent reportthat such a rally is coming "too much, too fast," because the impactof Trump's infrastructure plan on global demand was tiny compared tothat of China. Goldman Sachs, usually the mostpessimistic about the future of copper, says increased demand from China, theworld’s largest copper consumer, has left the market tighter than previouslyexpected. Its latest outlook is more positive in the short term and predicts abroadly balanced market in 2016. BHP Billiton, the world’s No.1 miner, is laying thegroundwork for a copper price recovery. Already the world's second-biggest listed copper miner, it hiked its annual copper and oil exploration spendingby 29% in2016. The firm, which wants copper to be one of the “pillarsof its future growth”, is already looking for more of the red metal in Chile,Peru, the US, Canada and South Australia. In the short term, however, BHP is not thatoptimistic. "A deficit is expected to emerge as grade declines, arise in costs and a scarcity of high-quality future development opportunitiesare likely to constrain the industry’s ability to cheaply meet this demandgrowth," it said in its annual report. “Althoughfundamentals…for copper have improved, the speed of the recent rally leaves itopen to the charge that price action has been too much, too fast,” Barclay’sanalysts said in a recent note to clients. They also believe prices will come under pressurebetween now and the end of the year, as the dollar strengthens ahead of anexpected US interest rate increase next month. "In the near term, mining companies are notinvesting in additional capacity and copper demand is growing at a pace ofaround 2 percent a year," the head of Chile's national miningassociation Sonami, Diego Hernández, said recently. Speaking at the Copper 2016 industry conferencein Kobe, Japan, Hernández said that supply growth will likely begin to dropfrom around 2019 and the market will face a “substantial deficit” in the nextdecade, coinciding with a demand recovery. - Peter R Jones, Executive Vice President, Century Global CommoditiesCorporation