Copper MMI: Copper prices pick up, aided by strong Chinese demand, supply fears

The Copper Monthly Metals Index (MMI) increased 5.1% for this month’s value, as copper prices continue to pick up globally.

LME copper prices increased throughout August, trading over $6,500/mt the last few weeks of the month. SHFE prices also increased during the same period, as local demand remained strong and refined production tightened.
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Copper prices pick up, find further support

LME copper prices declined for the first half of the month and, after increasing, traded sideways, moving from $6,439/mt at the end of July to $6,702/mt in August. The SHFE price followed a similar trend to the LME price. Both prices had not reached this level since June 2018.
Copper inventories in LME warehouses continued to decrease, closing at 89,350 tons. Stocks have not fallen to this low of a level since January 2006.
On the other hand, SHFE stocks had the exact opposite trend. SHFE stocks continued to increase throughout the month, rising to 170,086 tons this month. These trends have only accelerated in the first weeks of September.
Copper prices are partly driven by high Chinese demand. Consumption increased 14.9% year over year during the January to June period, up to 12 million tons.
Cuts on the supply side may have resulted in temporary fears in the market.
Chinese refinery capacity declined in recent months. Summer maintenance, along with concentrate supply tightening due to the pandemic, brought down refined production. Production fell by 5.3% to 814,000 tons in July, according to the National Bureau of Statistics.
China does not appear to be the only country producing less refined copper.
For example, Rio Tinto delayed the restart of its Kennecott mine in Utah due to maintenance.

Treatment charges to drop for sixth consecutive year

As concentrate supply tightens, the treatment and refining charges that miners pay to the smelters continue to decline.
The 2020 benchmark TC/RC agreed by miners and smelters was $62 per metric ton and 6.2 cents per pound. Since spot TCs throughout this year were around $51.50 per metric ton, some market analysts, such as BMO Capitals Markets, expect 2021 benchmark TC/RC to be lower than this year.
Even though lower TC/RCs help miners’ profitability, it decreases that of smelters. This might have negative effects on refined metal, particularly on China, as its smelters rely heavily on concentrate imports.

Refined copper imports increase in China

Antaike, the China Nonferrous Metal Industry Association’s research department, revised its 2020 forecast for refined copper imports, as June and July saw record import levels. The agency estimates 3.8 million metric tons of refined copper imports for 2020 compared to 3.55 million metric tons imported in 2019.
Imports during June and July were driven by the spread between LME and SHFE prices, which made it cheaper for traders to purchase overseas rather than in China.
Moreover, Antaike mentioned China’s State Grid will increase its investment by the end of 2020, which will increase copper demand.

Actual copper prices and trends

Copper prices continue to rise. The Copper MMI value increased 5.1% over last month.
Japan’s primary cash price increased 3.9% month over month to $6,896/mt as of Sept. 1.
U.S. producer copper grades 110 and 122 increased by 5.2%, resulting in a $0.19/pound increase for both, bring them up to $3.85/pound. U.S. producer copper grade 102 increased by 4.9% to $4.07/pound, up from $3.88/pound last month.
Indian copper cash prices increased by 7.6% to $7.19 per kilogram.
Korean copper strip increased by 15.8% to $8.59 per kilogram.
China’s copper prices increased by 4.7% to $7,629/mt.
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