Copper
Copper LME falls to two-month low

London Metal Exchange copper falls to a two-month low. Source: MetalMiner analysis of @StockCharts.com data.

Copper prices fell to their lowest level in two months on the London Metal Exchange Wednesday. Copper started the year bullish, but ever since prices have struggled near $5,000 per metric ton as investors seem unwilling to chase prices higher.

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Weaker Chinese imports over the past few months and the bearish calls of some major banks have contributed to the recent price fall. Unlike other base metals, sentiment on copper is still sort of bearish, making this metal the worst performer among its peers this year. Read more

When it comes to metals, demand has been heavily influenced by China for most of this century, but for copper, China has more than heavily influenced the market, it has dominated the demand landscape.

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According to Reuters, China has accounted for most of the demand growth since the commodities super cycle started in 2002, while over the same period consumption in the other parts of the world has stagnated or fallen as economic growth slowed. So, after a solid run this year for the copper price, the London Metal Exchange has risen from a six-and-a-half year low of $4,318 a ton in January to between $4,500 and $5,000 now. It should come as no surprise that warning bells are being rung in the face of weakening Chinese demand.

Imports Down… Supply Up?

China’s copper imports were down an annual 14.3% in July at 360,000 metric tons, Reuters reports, as the stimulus measures announced last year and early this year begin to lose their earlier impact. Much of the demand strength, such as it is, is currently attributed to speculative activity rather than real market demand. Shanghai stocks are rising suggesting metal being imported isn’t being consumed.

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Unlike steel, copper demand is not as heavily tied to the housing market in China. Demand comes from a variety of sectors, most of which benefited earlier this year from a surge of investment but which are now weakening as that stimulus wanes. Investment in the state grid and power industry accounts for about one-third of China’s copper demand, according to Reuters but demand is already said to be slowing, as is that in property and construction, which account for a smaller 20% of copper consumption.

CRU is quoted as saying “In the consumer sectors, demand from the auto sector is steady. Exports helped demand for air conditioners, but domestic sales were sluggish and that isn’t going to change much in the second half.”

Second Half Forecast

Not surprisingly, many are seeing falling prices in the second half, Goldman Sachs forecasts copper prices at $4,200 in six months and $4,000 in 12 months as a wall of supply — forecast by the bank to hit 4.2% growth this year — hits a stagnant demand market. Predictions of supply and demand balance vary considerably underlying the level of uncertainty but HSBC is predicting surplus as this graph from its recent Quarterly Metals & Mining Report shows.

Screen Shot 2016-08-11 at 14.01.59

Source: HSBC.

This prediction is made with a 5% disruption allowance built in, but according to Bloomberg 2016 has been the year for which mine supply has been the least disrupted since 2004. Contributing to the surplus supply position, this has impacted prices and Bloomberg says after a rise of 3% this year prices have already fallen back 1.9% this month, maybe forewarning of more to come.

China’s crude steel output fell in July and Glencore has shelved plans to sell a copper mine in Chile.

Chinese Steel Output Falls

China’s average daily crude steel output fell in July from a record, government data showed on Friday, providing some respite to overseas rivals angered by a torrent of cheap steel from Chinese mills in the past year.

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The output decline reflected China’s efforts to address a chronic glut, and analysts predict production may shrink further in the months ahead as more mills shutter. Some analysts predict output may shrink further in the months ahead as more mills shut in a sector undergoing its most significant — and painful — restructuring in two decades.

Glencore Rethinking Chilean Mine Sale

Glencore has shelved plans to sell a copper mine in Chile that was expected to fetch about $500 million, after failing to achieve a high enough price, according to people familiar with the situation.

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Along with other big mining companies, Glencore has been seeking to offload a range of assets to reduce debt following a commodities price crash, but a rally in raw materials markets and in the value of share prices of mining companies this year has taken away the need for urgent sales at any price.

Source: Ronnie Chua/Adobe Stock

Source: Ronnie Chua/Adobe Stock

Copper continues to struggle as demand for the metal wanes, most notably in its top consumer market, China.

BMI Research analysts noted that copper inventories indicate a significant lack of demand in general, but a lack of demand coming from China makes it especially troubling considering the Far East Nation is the world’s largest importer of the metal.

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“While the corresponding decline in Shanghai inventories largely offset the jump in (London Metal Exchange prices), the shift suggests that China’s strong H1 2016 economic data does not in fact reflect improving demand growth,” BMI Research stated, according to a report from Business Insider.

The note added: “We expect China’s refined copper imports to decelerate over the remainder of the year, and will remain wary of any other rapid movements in inventories.”

Copper MMI gains just a single point

Our own Raul de Frutos noted that copper on the LME continues to trade up and down with the metal struggling near $5,000 for the ninth straight month. Citing the International Copper Study Group, de Frutos stated that refined copper balance for Q1 2016 reveals a production deficit of around 119,000 metric tons (seasonally adjusted to 129,000 mt.) compared to a production surplus of around 13,000 mt. (seasonally adjusted to 12,000 mt.) for the same time frame in 2015.

You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

Our Copper MMI gained just one point. Unlike other base metals, Copper on the London Metal Exchange continues to trade up and down. The metal struggled near $5,000 for the ninth-consecutive month.

Copper Markets In Deficit

According to the International Copper Study Group (ICSG), the refined copper balance for the first four months of 2016 indicates a production deficit of around 119,000 metric tons (and a seasonally adjusted deficit of about 129,000 mt). This compares with a production surplus of around 13,000 mt (a seasonally adjusted surplus of about 12,000 mt) for the same period of 2015.

Copper_Chart_August-2016_FNL

Stronger apparent Chinese demand caused the deficit. In the first four months, Chinese apparent demand increased by around 14% and world apparent refined usage is estimated to have increased by around 6%.

Chinese Imports Surge

In June, China imported 420,000 mt of unwrought copper and copper products, up 20.3% from June of last year. For the first half of the year, imports increased 21% compared to the same period in 2015. The growth in imports has helped support metal prices, too. However, there are different opinions on whether those imports are actual demand or just stockpiling into warehouses.

An expected, new round of infrastructure spending in China should continue to keep copper demand and China’s imports strong in the second half.

Prices Struggle

So the whole metal complex is performing well. Markets appear to be in deficit (although with high stock levels looming), investors are optimistic that they’ll see more stimulus coming from China and copper imports are strong. This all sounds bullish for copper prices this month, but traders seem unwilling to chase prices much higher than $5,000.

We have yet to see that bullish shift in investor sentiment in copper. Unlike other base metals, it’s still early to call this a bull market.

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reuters_chartoftheweek_550_072716London Metal Exchange copper edged down but held above one-week lows hit in the previous session ahead of the outcome of a Federal Reserve meeting where it held rates steady, keeping costs lower for capital-intensive commodities. Source: Reuters.

The U.S. and the European Union filed a joint World Trade Organization challenge against China on July 19 over its use of duties and export quotas to control shipments of metals such as tin, tantalum, lead, copper, chromium, cobalt and others.

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The E.U./U.S. effort comes after the U.S. government’s original request for consultations filed on July 13. It also comes after the European Union failed to resolve a dispute with China over its use of duties and export quotas during bilateral meetings with China last week.

Chinese imports are allegedly being dumped in the EU and other foreign markets. Source: Adobe Stock.

Chinese export quotas are being challenged by the U.S. and the E.U. Source: Adobe Stock.

The new request adds challenges to export duties on chromium to the original list of antimony, cobalt, copper, graphite, indium, lead, magnesia, talcum, tantalum and tin. The new request also includes China’s export quotas imposed on antimony, indium, magnesia, talc and tin.

Trade Rep Speaks Out

During last week’s announcement, U.S. Trade Representative officials said export duties on the raw materials ranged from 5 to 20% and enabled Chinese companies to produce lower-priced goods than their U.S. competitors. China also used the lower cost of raw materials to encourage U.S. companies to move production to China, the office of the U.S. Trade Representative charged. Read more

Source: Adobe Stock/ epitavi

Source: Adobe Stock/ epitavi

What’s copper demand like in China, the world’s largest consumer? If the volume flooding warehouses in Asia is any indication, then copper prices could be weighed down as a result of that apparent demand.

According to a report from the Financial Times, copper currently residing in warehouses licensed by the London Metal Exchange (LME) has climbed by 18% over the past week, the highest level since February.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Sign up for your free trial to our monthly buying outlook reports!

This tidal wave of copper could weigh on prices, which recently closed in on a two-month high of nearly $5,000 per metric ton due in part to expectations of further economic stimulus from central banks.

“It’s certainly a sign the market is struggling to absorb all of the supply coming to it,” Matthew Wonnacott, analyst at consultancy CRU in Hong Kong, told Financial Times. “Partly because supply is good but demand is not that great either.”

Chinese copper exports

Our own Raul de Frutos wrote recently that Chinese copper exports spiked as much as 256% in May this year when compared to the prior year. This causes some concern about domestic demand with production also rising significantly, up 7% year-over-year in May.

de Frutos added: “Along with the LME copper inventory, bonded copper stocks held in free trade zones in China have climbed this year. Higher inventory levels are, perhaps, limiting the upside potential of copper prices. Although copper rose in June, the outlook remains neutral and, due to all of this uncertainty, we could continue to see choppy price action in the coming months.”

You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

Six little letters have dominated the political and economic news cycle over the past month or so: BREXIT. While the long-term effects of Britain’s vote to exit the European Union won’t be felt for awhile, the surprising result has already roiled global markets, including commodities in general and metals specifically.

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Our biggest winner of the Monthly MMI series, the Global Precious Metals MMI, gained the most from June to July, primarily driven by gold prices (themselves driven by near-term investor moves over to safe-haven assets brought on by the Brexit vote).

MM-IndX_TRENDS_Chart_July2016_FNL-TOPVALUE100

Some have indirect Brexit connections, such as our Renewables MMI and the consequences of the U.K. announcing it won’t make E.U. 2020 climate reduction goals… which it won’t need to if it completes its exit before 2020 (likely). Others, like our GOES MMI, were not affected at all.

The value of the U.S. dollar, China’s import/export activity, and international trade cases (especially those in the ferrous realm should continue to be watched by industrial metal buyers during these dog days of summer. However, we wish our British colleagues well in these politically uncertain times and offer our recent webinar to help them navigate the newly choppy purchasing waters.

China, this year, is becoming more than just the world’s largest metals consumer, it’s also taking a larger role in setting metals prices. While oil prices have crept up this summer, another selloff could be caused when refined products in storage finally come to market.

China is Taking a Bigger Role in Setting Metals Prices

The prices of metals from aluminum to zinc have long swayed to the beat of the world’s largest manufacturing nation, Reuters’ Andy Home writes.

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But this is the year that China has emerged from the limelight to take center-stage in the trading of those metals. On one day alone, March 10, trading volumes on the Dalian Exchange iron ore contract exceeded one billion metric, more than the combined annual output of the world’s biggest three producers, Rio Tinto Group, BHP Billiton and Vale SA.

Another Oil Glut is Likely Due to Products in Storage

In its July Oil Market Report, the International Energy Agency warned about shockingly high levels of refined oil products sitting in storage. Gasoline, diesel and heating oil are built up to such high levels in so many parts of the world, that a sharp rise in crude oil prices is unlikely in the short run, oilprice.com reported.

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The IEA said that “the fact that crude oil has in the past two months moved within a range in the high $40s/bbl should be a relief for some producers.” But it went on to caution that “the existence of very high oil stocks is a threat to the recent stability of oil prices.”