LME copper

Copper inventories are suddenly low on the London Metal Exchange and U.S. shale gas drillers are still beating the odds and producing oil for a profit.

Low LME Copper Inventory

A slide in copper inventories on the London Metal Exchange to the lowest levels in 18 months is prompting some speculators to shift bets away from volatile benchmark futures to spreads.

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The low levels of LME stocks is expected to send spreads between contract months rising as those holding short positions scramble to cover or roll over their positions.

Trading the spreads allows an investor to avoid having to take a directional view on the benchmark futures market, which has whipsawed back and forth recently, analysts said.


The long-anticipated fall-off in U.S. shale oil output is still proving slower and more tempered than anticipated, impeding the process of correcting the global glut that has walloped prices.

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This month, the Marcellus shale formation of the eastern U.S., the country’s biggest gas play, will yield 17.4 billion cubic feet a day, the U.S. Energy Information Administration said last week. That’s almost 2 billion cubic feet, or 11%, more than the agency had forecast last month.

Copper prices continued to make new lows in January. Prices fell below $2 per lb. for the first time since May 2009. Our Copper MMI tracking prices globally fell 5% to 58 points.

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Some investors see copper not only as a benchmark for base metal prices, but also as a benchmark for the state of the global economy. Right now, there is not much going in favor of copper. The global economy is having its worst moment since the global recession of 2009, at least from an investor’s perspective. Meanwhile, commodity markets continue to slide driven in part by a slump in oil prices.

The combination of lower copper and oil prices is specially hurting some copper producers that also have energy assets such as Freeport-McMoRan. The company is the world’s largest copper producer while oil and gas accounts for almost one-sixth of Freeport’s revenues. The company’s stock price fell 45% just in the first two weeks of January, after it hit a 13-year low in December.


Copper investors are closely watching Chinese economic data, as China is the world’s largest consumer of copper. The year started on a weak note after the China’s PMI came at 48.4 in January. The index has been in contraction territory (below 50) since March 2015.

The Copper Lining

On the other hand, copper bulls could find some bright spots in January’s data. China is not self-sufficient in its copper requirements, so it imports the metal in large quantities. December’s trade data showed that Chinese copper exports increased sharply, rising hopes among copper bulls that the country’s copper demand might not be as weak as the current price trend depicts.

Copper import data will be something to watch in the months ahead as it will provide insight on whether the spike seen in December imports was something sustainable or more of a one-time blip.

Better than expected copper imports in January could give some support to copper prices although if China’s copper imports start dipping that could spoil investors’ sentiment.

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Another factor that could have some positive impact on copper prices is the recent dollar weakness. The dollar and dollar denominated commodities are inversely correlated. The Fed not rising rates in March could potentially cause the dollar to weaken in the months ahead. On the other hand, rising rates could trigger more sell-offs in copper and the rest of base metal prices.

What This Means For Metal Buyers

Other than better-than-expected Chinese copper imports in December, there is little going on to expect a turnaround situation in copper markets. While the slump in commodities continues and global markets slide, copper has little upside potential.

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The monthly Copper MMI® registered a value of 66 in September, a decrease of 1.5% from 67 in August.

Copper_Chart_September-2015_FNLThe red metal has done nothing but fall since its peak in 2011. A series of lower highs and lower lows put this metal in what we call a textbook bear market.

Copper downtrend since 2011

Copper’s downtrend since 2011. Source: MetalMiner.

The declines, however, were steeper this year. Investors particularly dislike copper, as worries about China’s economy are rising.

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China’s stock market crash and the devaluation of its currency are just aggravating copper’s bear market.

Weak demand in the face of a glut of metal keeps driving prices down. China is producing more copper and importing less, weighing on an already oversupplied market. China’s copper imports fell more than 10% this year to date, while its copper production rose 9%.

Manufacturing Demand Plummets

On top of that, China’s manufacturing PMI fell to a more than 6-year low of 47.1 in August. Construction and manufacturing numbers keep giving investors reasons to remain bearish.

With prices at these low levels, according to external sources, 17% of copper mines are producing at a loss. While many producers are aggressively doing all they can to move down the cost curve, others are also cutting production. Glencore PLC recently revealed plans to suspend production at two African mines. That will cut its copper output by nearly a fifth. These facilities will not operate for 18 months while the company builds lower production cost facilities to fight the current low prices.

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Many are arguing that we are close to the bottom of the cycle with copper. However, it could be some time before the demand picture changes or enough capacity is closed to impact prices. As copper has taught us over the past few years, better to wait for the facts than be too early calling for bottom.

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US auto sales remain the bright spot in the drivers of the monthly Automotive MMI®.

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Seasonally adjusted annual rate of sales for light vehicles rose to 17.8 million compared with 17.3 million a year earlier and was the highest since July 2005, according to researcher Autodata Corp. August was the fourth consecutive month that adjusted sales remained above the 17 million mark.

Automotive August-2015The Automotive MMI® still registered only a value of 73 in September, a decrease of 3.9% from 76 in August. Weak prices for most of the base metals that make up the index (HDG, copper, aluminum and lead) abound despite strong end user sales in the US. In China, auto sales are falling with the rest of the domestic economy there.

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China Again

Chinese auto sales fell by 7.10% in July 2015 compared to July 2014, the largest fall since February 2013 and such a large economy’s fall is dragging down the prices of automotive metals just as it is dragging down the prices of oil and other commodities.

Major iron ore producers, Rio Tinto PLC, BHP Billiton, Vale SA and Fortescue Metals Group Limited have ramped up production again despite massive iron ore and steel oversupply. Zacks.com believes they intend to continue exploring for iron ore in Australia despite lower growth forecasts from China and weaker iron ore prices, betting on continued strength in iron ore demand over the long term.

What This Means For Metal Buyers

This is normal behavior from major miners such as the Big Three (Rio, BHP and Vale) and almost-there cousin Fortescue. They can make a profit by squeezing volume out of their mines at low prices based on scale, alone, but iron ore investment is coming from non-traditional miners, as well.

India’s Essar Steel is making a $1.9 billion investment in the steelmaking ingredient in Minnesota, of all places. It’s difficult to imagine how such an investment makes long-term sense for Essar without a turnaround in both iron ore and steel prices. Since high-strength automotive steel alloys are one of the best-performing steel products on today’s market, it’s even more difficult to imagine those prices turning around without continued strong auto sales in the US and Europe and a turnaround in China and other emerging markets.

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This Month’s Prices and Trends

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Copper prices are dipping below the psychological basement support level of $5,000 per metric ton.

3M LME Copper since 2010

Three-month London Metal Exchange copper since 2010. Graph: MetalMiner.

The metal has done nothing but fall since 2011, but the declines have become steeper over the past few months. Investors particularly dislike copper, as worries about China’s economy are simultaneously rising. China’s stock market crash and the recent devaluation of its currency are just aggravating expectations of a further copper fall.

Meanwhile, China’s latest Purchasing Managers’ Index numbers fell to a two-year low, while construction numbers are still disturbing to investors. The slowdowns in the Chinese manufacturing and construction sectors are significantly hitting copper demand, or at least any hopes of demand coming back.

The monthly Copper MMI® registered a value of 67 in August, a decrease of 8.2% from 73 in July and an all-time low.


Copper prices hit another fresh low last month. Three-month LME prices are near $5,000 per metric ton, a level last seen in 2009. For many months now, producing costs relative to prices have been under close scrutiny in metals like aluminum and nickel. Now it’s copper’s turn.

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Prices Below Production Costs

Many analysts are arguing that copper prices have fallen to the point where cost of production is exceeding the spot price, and many miners are going to look at cutting production and future spending. Does that mean that higher-cost producers will start closing capacity, triggering a supply response and therefore end this copper bear market?

First, cost-curves are not constant targets. They fluctuate depending on a bunch of factors such us input costs, exchange rates, etc. Copper prices are not the only thing falling. The entire commodity market is sinking, with falling energy prices continuously lowering input costs. Moreover, a stronger US dollar is lowering the costs in local currencies like the Chilean peso.

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Second, even when produces are underwater, they tend to hang out as long as they can. Closing mines is usually a later response to financial and social pain.

What This Means for Copper Buyers

In conclusion, it’s good to understand where production costs are relative to prices but they are not useful when it comes to guessing a price bottom. Prices can remain below production costs for long periods of time, as we’ve seen in aluminum and nickel before.

The market probably won’t change that much until we see a resurgence in demand. Although we could see some short-term rebound in prices, the long-term picture doesn’t look good yet. On January 2014 we were bearish on copper, today we still are.

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The Copper MMI® collects and weights 12 global copper metal price points to provide a unique view into copper price trends over a 30-day period. For more information on the Copper MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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There was no joy in automotive metals this month as prices retreated again amid ample supply and not enough worldwide demand.


The monthly Automotive MMI® registered a value of 76 in August, a decrease of 7.3% from 82 in July, another all-time low for the index. Before the last two months, its previous low was 85.

Steel Prices Falling

Base metals remain in a bearish market, one that’s starting to edge on historic proportions. Also, a glut of imported steel in the US market continues to drive down prices domestically while the lack of demand overseas only exacerbates the problem here.

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US steelmakers have been forced to rely on anti-dumping actions again in hopes of creating some semblance of market equilibrium.

Steel is not the only ingredient in the Automotive MMI and its fall has been helped along liberally by steep falls for aluminum, palladium, platinum and copper.

Vehicle Sales Faltering

At least in the US, sales of automobiles are still strong, too. A sales collapse in China is one of the many effects of the stock market crash and slow economic growth there.

“There’s excessive competition and automakers are building excess capacity, and to raise utilization of the plants, they will engage in excessive selling,” Fumihiko Ike, chairman of the Japan Automobile Manufacturers Association, said in reference to the market many are looking at to create global sales increases.

The Chinese market is generally regarded as one that provides higher sales margins to manufacturers and Volkswagen, BMW and other manufacturers are taking on a hit on sales there.

With a continuing metals surplus and only the US end-user market in decent shape, it’s difficult to predict a turnaround for the Automotive MMI. The Thomson Reuters/Jefferies CRB Commodity Index is hitting new lows as well.

Actual Automotive Metals Prices

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Through half of 2015, US auto sales are on track to hit record levels not seen in 15 years. After climbing more than 4% through July annual sales could approach the previous annual record of 17.4 million if they stay on this pace.

Yet, none of that demand seems to be helping automotive metal prices.

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As robust as the US automotive market is, it can’t entirely make up for sluggish sales elsewhere that are depressing demand for metals such as steel, aluminum and copper and pushing our index further down. Even the exhaust system metals, platinum and palladium, saw a deep dive this month.

Chinese New Car Sales Barely Growing

New car sales grew just 1.2% in China this May. Further complicating matters, is the fact that the nation of 1.37 billion is starting to develop a used car market and it’s looking very much like Chinese consumers like paying less for a used car, rather than paying more for a new one. What a shock?

This is, of course, bad news for raw materials suppliers as the massive Chinese auto market only recently transitioned to automobiles being the main form of transportation. Less-metals intensive bicycles and motorbikes had filled that role until recently.

Chinese steel and aluminum manufacturers had been counting on more robust growth from the domestic new car market and a strong used market could stunt the advances many were planning to reap from new car sales.

Bearish Market Hits Home

The monthly Automotive MMI® registered a value of 82 in July, a decrease of 3.5% from 85 in June.


As we have documented liberally, the strong US dollar has created a bearish environment for all metals and automotive inputs are no exception. The steep fall observed this month in palladium, a metal that had previously held our automotive index up, was an example of just how much the bearish market is affecting even metals with strong demand. Palladium hit a two-year low this month and the bottom, subsequently, fell out of an already listing price index.

Copper, zinc and lead also fell significantly.

What This Means for Automotive Metal Buyers

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The drama surrounding Greece’s debt is compounding the bear market and, while it hasn’t yet caused strong currencies such as the dollar to see significant gains, its potential to do so threatens all commodities.
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The Automotive MMI® collects and weights 7 metal price points used in automotive production to provide a unique view into automotive metal trends over a 30-day period. For more information on the Automotive MMI® constituent metals and their exact price movements, log in or register below!

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The monthly Copper MMI® registered a value of 73 in July, a decrease of 2.7% from 75 in June.


Copper suspiciously rallied in the first quarter, gaining almost 20% from trough to peak.

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However, copper prices fell again in May and June and those previous gains have almost vanished. The copper rally was always suspect at best.

Chinese Construction Feeding the Bear

The bearish commodity market is definitely not encouraging investors to pour money into copper. Another big factor that doesn’t help to lure investors into copper is weak Chinese demand for the metal. The latest Chinese numbers show poor demand from key sectors:

  • In the first five months of current year, real estate development firms purchased 76.50 million square meters of land, a year-over-year (YoY) decline of 31%. The floor space of completed buildings declined 13.3% YoY as of May. Finally, Chinese real estate firms have started construction on only 503 million square meters as of May, falling 16% YoY.
  • A lower growth rate in China’s automobile sector also hits copper’s demand. China’s passenger car sales only grew by a mere 1.2% YoY in May, sliding 3.6% from the previous month.

Meanwhile in May, China produced 0.65 million tons of refined copper, a 6% YoY increase.

What This Means For Metal Buyers

The latest figures don’t give investors reason to think that copper’s fundamentals are set to tighten up and, overall, the market sentiment on commodities is bearish. We shouldn’t expect copper to make significant upside moves.

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This September: SMU Steel Summit 2015

The Copper MMI® collects and weights 12 global copper metal price points to provide a unique view into copper price trends over a 30-day period. For more information on the Copper MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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The red metal met the Red Cross earlier this week in the kickoff post of our series on health-acquired infections (HAI) and copper’s role in the war against them – but what hospital procurement officers and facilities management departments may want to know is, what’s up with the copper price?

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First step in the multi-step program of “What’s Up With the Copper Price?” is a look back at where prices have been: MetalMiner’s monthly Copper MMI® registered a value of 75 in June, a decrease of 2.6% from 77 in May.


The index decline was driven mainly by spot and 3-month London Metal Exchange prices, US copper producer grades 102 and 110, and Chinese copper wire.

What’s Up With That?

Second step in the multi-step program of “What’s Up With the Copper Price?” is knowing some of the underlying fundamentals that may have to do with its shift. For that, we turn to MetalMiner Editor-at-large Stuart Burns, who writes that:

“Analysts expect China’s copper demand to grow by 4% this year, yet that figure is based on considerable use in power grid investment and assumes government spending plans will be met. Power grid investment actually fell by 8.65% in April, according to the FT, and in the first four months of this year China completed Rmb86.6bn of grid investment, only 20% of the planned amount for the year.

Investors agree with the pessimistic outlook cutting their net long positions in copper, joining Chinese speculators who have been betting against copper all year.

A CNBC report says recent weakness is due to weak premiums, high scrap discounts and a failure of the seasonally strongest quarter for copper to translate into solid demand. China’s factories are now approaching a summer slow-down and with it lower metal consumption.”

Outside China, there’s always Mongolia – and the Oyu Tolgoi copper mine, from which Rio Tinto‘s recent bullishness is born. According to the FT, “Rio Tinto recently forecast that copper prices will recover faster than expected with demand outstripping supply within two years. This bullish forecast comes as the Anglo-Australian miner steps up talks in May with the Mongolian government aimed at finalizing a deal on a $6 billion expansion at Oyu Tolgoi, which had been stalled for months. The lack of new copper projects in the pipeline could result in a market deficit earlier than expected,” the paper indicates, “but even if Rio Tinto was right, 2 years is still a long period of time where we could see further price declines.”

What’s Up With the Market?

For the third step in the multi-step program of “What’s Up With the Copper Price?”, we cast our focus onto the future by turning to our metals procurement specialist, Raul de Frutos:

“Copper prices have been rallying since February and, in the short term, they could continue doing so. For the short term, consider placing orders now for known demand. Don’t buy long-term forward, as copper is in a bearish market and we expect prices to lose steam soon and come back to lower levels.”

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