Copper prices rose above $8,000 a ton for the first time in more than seven years, as Goldman Sachs Group Inc. and BlackRock Inc. noted that a new long-term rally may be under way as supply lags behind expected demand growth.

Copper prices are up about 80 per cent from their March lows and the market is witnessing its strongest rebound in more than a decade, driven by demand for commodities from emerging economies and supply hurdles in the early days of the Covid-19 pandemic.

Expectations of deficits (where demand outstrips supply), the weak dollar and China's role in green technology have also boosted copper prices.

Some banks and investors are now drawing parallels with the price surge of the early 2000s, when a surge in Chinese orders triggered the last commodities supercycle.

Jeff Currie, head of commodities research at Goldman Sachs, says all the signs of a supercycle are clear.

He points to metal prices hitting multi-year highs, the weakness of the dollar, crude oil hitting $50 a barrel and rising global liquidity.

The surge in copper prices has been a boon for miners, boosting shares of copper-heavy miners such as Antofagasta Inc., and Freeport McMoRan Inc., which recently hit a multi-year high.

In addition, production costs have been falling, setting the stage for a spurt in profitability this year.

On the London Metal Exchange, copper rose 1.4 per cent to $8,028 a tonne, its highest price since 2013.

Most other metals were also higher, with aluminum up 0.5 percent.

Iron ore futures in Singapore surged above $160 a tonne, hitting their highest level since trading began in 2013.

Goldman notes the beginning of the positive feedback loop between commodities, the dollar and emerging market growth that has powered past structural bull markets.

It said in a report on December 17, the center is strong, synchronization, policy driven demand, mainly focus on wealth redistribution and renewable energy, and renewable energy supply products spending is still in a very low level, this kind of demand growth should keep markets for the foreseeable future.

Evy Hambro, BlackRock's global head of thematic investments, said on Thursday that the firm expects copper prices to hit record highs during an upcycle.

China's relative success in containing the epidemic and optimism about global economic growth next year as vaccines are rolled out have fuelled a rally in industrial commodities ranging from iron ore to oil.

Copper's fall of more than 50 per cent from its record high in 2011, to below $5,000 a tonne in the slump of 2015-16 and earlier this year, has been a remarkable turnaround for the metal.

Copper prices also benefit from more specific factors that appeal to long-term investors.

While many expect oil prices to rebound in the short term as the global economy begins to normalise, the long-term outlook for oil prices will be more doubtful as the pace of the energy transition gathers pace.

Copper, on the other hand, could benefit from this shift because of its use in electrical wiring.

In the short term, tight supply and strong demand have boosted copper prices.

Sales in top consumer China hit a record high last month, showing the resilience of consumption as the country shrugs off the effects of the epidemic.

Inventories tracked by major exchanges, including the London Metal Exchange, have fallen to a six-year low, in a sign of tight supply.

There is a risk of cooling

The outlook for consumption outside China is also brighter.

US lawmakers are pressing to finalise a spending deal and the Federal Reserve this week stepped up its commitment to support the world's largest economy.

There may be a risk of cooling.

Citigroup warned earlier this month that metals prices were "too hot to handle" after the recent rally and could be subject to a correction without support from the real market.

Investors may now be pricing in a broader, deeper and stronger economic recovery in 2021, Fitch Solutions said in a report.

That raises the risk that prices will struggle to sustain these gains later in 2021.

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