Copper bulls who were betting on continued price rises — or, more importantly, copper consumers worried about escalating copper costs — may be looking at the copper price and wondering what is going on.
Prices hit over $9,600 per metric ton in late February but have since fallen back.
Although experiencing volatility, the copper price has traded in a roughly +/- 2% band just below $9,000 per metric ton since.
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Copper price views
Bulls like Goldman Sachs argue this is just a pause, ignoring the build in LME stocks. Instead, it points to the collapse in smelter treatment charges as proof the market remains tight.
Low mine output results in tight concentrate supply. When that happens, smelter treatment charges chase the market down in an effort to secure concentrate to process. Treatment charges rise during times of plentiful concentrate supply and fall during times of concentrate famine, Reuters notes.
The contract treatment price for Q1 is $59.50 per ton, the lowest since 2011.
But even more telling is the collapse of the spot price. The Asian treatment charge recently reached $21.90 per ton, the lowest since 2013, according to Fastmarkets.
Reuters even reports one sale by Antofagasta of 10,000 tons of copper concentrate for June shipment being agreed at about $10 per ton and one cent per pound TC/RC.
China smelters on maintenance
Not surprisingly, Chinese smelters are putting plants onto maintenance until the situation improves. As a result, there is a loss of between 200,000 and 250,000 tons of production, Goldman Sachs estimates.
A lot of new smelter capacity coming on stream in China in the last two years has exacerbated the situation. While refined copper demand remains strong, smelters can only refine concentrate if they can get it.
So why isn’t refined metal being sucked into the country as a result?
Under such circumstances, increasing LME stocks are the last thing you would expect.
But as we wrote recently, another factor at play is China’s reclassification of scrap grades. As a result, higher-quality copper scrap has surged into the country. That flow of scrap has replaced, at least for the time being, the need for concentrate.
JP Morgan less bullish on copper
JP Morgan is apparently not so bullish as Goldman. According to Reuters, the bank is saying the lack of concentrate supply is a temporary, pandemic-induced issue that is past its peak.
As a result, mine supply is now increasing. Greater concentrate supply will improve metal availability. This is the case for Chinese smelters and for the rest of the world, which has also seen exceptionally low refining charges.
JP Morgan is forecasting copper prices to peak at $9,000 per ton this quarter and slide back to $7,865 per metric ton over the second half of the year. It argues more plentiful mine supply will take the steam out of the copper market.
Copper consumers no doubt hope JP Morgan have got it right.
But as Reuters observes, smelter stocks are low and will take time to replenish. In the meantime, the lack of smelter output in Q2 will leave the market undersupplied in what remains a robust demand environment.
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