Copper caught in the summer doldrums

Dial back to the sentiment earlier this year and copper would be powering through $11,000 per metric ton with today’s fundamentals. However, it has spent much of the last month bobbing around the mid $9,500 per metric ton mark (currently sub-$9,400 for cash).
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Copper supply news

copper mine
vadiml/Adobe Stock

Copper is normally sensitive to supply concerns.
So, the news that three mines are out of commission should be of significant support.
Reuters reported this week that although a walk-out at the world’s largest mine, Chile’s Escondida, was averted at the 11th hour this month, strikes began at the Caserones and Andina mines last week.
Union leaders at Caserones didn’t even wait for the full 10-day mediation period to end before walking off the job, Reuters reported. The mine produced 127,000 metric tons of copper last year.
Meanwhile, Codelco’s Andina mine is currently operating at a reduced rate after the start of strike action last Thursday. Andina produced 184,000 tons of copper in 2020.

Nor was South America the sole supply risk. The Highland Valley mine in Canada has temporarily closed due to a nearby wildfire. The mine produced 120,000 tons of copper last year.

Investor interest

Investors meanwhile are either too focused on the demand picture or away on holiday — or both.
Open interest (a measure of the net long positions) on the LME is estimated by Reuters at just 4.3% last week, a one-year low and indicative that investors are taking their cue from problems in China, where a stimulus-fueled recovery is perceived to be fading.
Industrial output, fixed asset investment and retail figures out on Monday all came in below expectations. All of that adding to nervousness about the potential spread of the Delta variant within the country, the post reports. Meanwhile, China’s refined copper imports fell for the fourth straight month in July. However, Reuters reported greater availability of scrap metal has probably been a substitute for refined metal imports.

Copper stocks build

Although stock levels are not a great proxy for demand, the fact stock build over the first half of the year on the LME has been significant at 130,000 tons to 235,550 tons now suggests ample supply, although a fair part of this could be frustrated metal that had been positioned for potential sale to China prior to the gradual switch to high-quality scrap that has been a developing feature this year.
Meanwhile, off-market LME stocks and CME/SHFE inventory build has been sliding. That has left the market more exposed next year, should supply constraints persevere and/or demand pick up.
The post notes that Goldman Sachs remains perennially bullish for copper. It suggests supply constraints will be a feature of the market next year. When investors wake up to their point of view, they argue, prices will again test highs.
We remain to be convinced. However, we await the end of the summer vacation season to see if investors warm to the notion on their return.
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