Copper prices are soaring. Here’s why that’s good news for the recovery

Copper prices climbed to their highest level in nearly a decade Friday as investors in the commodity anticipate rising demand for infrastructure and construction projects in the post-pandemic economy.

On Friday, the price of copper climbed above $4 per pound for the first time since September 2011.

The base metal is used in many construction materials, including electrical wires and water pipes. The uptick is being driven by short and long term optimism for the commodity due to both strong expected demand and supply constraints.

With the full reopening of the US economy on the horizon and President Joe Biden’s plan to invest heavily in America’s infrastructure, as well as China’s ongoing economic recovery, there is reason to believe copper demand will remain high.

China’s economy grew 2.3% in 2020. Although it was that nation’s slowest annual growth rate since the 1970s, it was also a welcome positive surprise after the world experienced its worst economic shock in recent memory.

China is an important puzzle piece for copper prices because it’s such a big consumer of the metal. Demand is so high that inventories there are at their lowest level in nearly 10 years, according to commodity analysts at BCA Research.

Demand from China was the main driver of copper prices last year but “as consumption from the Asian country has slowed in recent months, the recovery has broadened,” commodity analysts at Bank of America Merrill Lynch (BAC) said last month. And that’s a good sign for prices in the long run: every nation needs copper for their recovery.

The BofA analysts think prices can rise above $4.54 “at some stage.”

The main risk to copper’s success story is a delay to the reopening of the economy caused by hiccups in vaccine efficacy or a renewed increase in infections.