Copper supply detail24 Jan 2019 21:28
Some insightful analysis on the current state of the copper market some 2.5 years into the recovery stage of a new market cycle.
It’s sentiment over fundamentals for copper amid trade war - Cogensis / Dec 6
The copper market has been caught in the whirlwind of a trade war between the US and China.
Copper started the year on a high of $7,200 per tonne due to fear of supply disruptions. It then tumbled to $6,140 per tonne as supply worries eased and US-China trade tensions escalated.
This is largely because copper is considered the bellwether of global economic health, making it susceptible to downward pressure whenever there are doubts over global economic growth. The headlines over a trade dispute between the US and China that hit the market every now and then have not helped the market sentiment either.
Macroeconomic concerns have clouded the picture on fundamentals for copper. As we enter the new year in a few weeks, it is worth taking stock of the situation and analyse whether the market is ignoring the supply-demand dynamics due to macroeconomic worries.
China accounts for almost half the global copper consumption. A slew of data released in the past few weeks has shown that the country’s economy is stuttering. This has also weighed on copper.
Nevertheless, physical markets, for both refined and concentrates, tell a different story. China imported 521,000 tonnes of copper in September, the largest monthly import volume since March 2016. Though refined copper imports fell to 423,000 tonnes in October, they were still up 27% year on year. Overall, in the first 10 months of the year, China imported 3.76 mln tn of refined copper, up 17.2% on year.
Copper stocks at LME warehouses have continued to decline, falling to 128,200 tn this week and marking a low not seen since July 2008. Meanwhile, COMEX copper stocks were at 132,842 tonnes of Monday, down from 230,376 tonnes in March.
Antofagasta, a major copper mining producer, and Jiangxi Copper, the largest copper smelter in China, have agreed to lower treatment and refining charges of $80.8 per tn and 8.08 cents per tn, respectively, for 2019, the lowest fee in six years. Usually, this signals more demand for copper concentrates.
The tightness in the copper market is also being reflected in the futures market. The LME cash to three-month spread of copper has been in backwardation, which typically indicates shortage of the commodity.
According to latest reports by the International Copper Study Group and World Bureau of Statistics, the copper market was in a deficit in the first seven-eight months of this year. Though both the entities differ in their estimate of the deficit, one striking aspect is the circumstances in which the market has recorded a shortage.
Last year, copper prices skyrocketed, following a strike at the Escondida mine in Chile, the largest copper mining country. Also, there was a 12.5% decline in Indonesia’s copper production. As a result, the
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