Copper MMI: Sideways trend persists, Fed fosters bearish sentiment

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The Copper Monthly Metals Index (MMI) rose 0.8% for this month’s reading.

January 2022 Copper MMI chart

Copper prices continue to trade sideways within a big time frame, a resistance and support channel.

While prices have consolidated within the channel, there are certain points of interest marked as key levels that would indicate a macro bullish continuation or macro reversal to the downside.

As such, no significant direction in price is clear. More bullish actions need to occur to confirm an  upside.

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Market pays close attention to Fed

Market sentiment continues to be swayed by the Federal Reserve.

After inflation reached 6.8% in November, the fastest pace since 1982, the Fed announced after its mid-December meeting it would double the pace of its tapering of quantitative easing measures put in place at the dawn of the pandemic. Beginning in January, the Fed scaled back bond purchases to $60 billion each month. Additionally, officials projected at least three quarter-percentage point rate hikes throughout 2022.

The announcement spurred LME copper prices to hit a two-month low Dec. 15. As prices descended, LME trading volumes spiked.

Prices recovered from the dip but faltered once again upon the release of the Federal Reserve’s meeting minutes. Amid persistent, rising inflation, a stronger economic outlook and “tighter” labor market, members suggested “it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.”

Additionally, members considered the reduction of Treasury holdings and mortgage-backed securities. The prospect of impending rate hikes and hawkish policy shifts saw LME copper prices, once again, fall Jan. 5-6 as trading volumes picked up on the descent.

While the Fed began to scale back its asset purchases in January, uncertainty still lingers regarding the implementation and quantity of rate hikes. As copper prices have a historically inverse relationship with the U.S. dollar, the Fed’s efforts to address inflation will add downward momentum to copper prices. The Fed will reconvene Jan. 25-26.

2022 treatment charges

China’s leading copper smelters will keep treatment charges unchanged, Reuters reported, during the first quarter of 2022. The spot rates will hold at $70 per ton and 7 cents per pound, still 32% above the first quarter of 2021. The China Smelters Purchase Team (CSPT), which includes Jiangxi Copper, China Copper and Tongling Nonferrous, among others, will adhere to the charges when processing imported concentrate.

Meanwhile, miner Freeport-McMoRan made a separate agreement with Chinese smelters in mid-December. Treatment charges for 2022 will rise by 9.2% year over year, to $65 per ton and 6.5 cents per pound. The increase follows six consecutive drops in annual treatment charges since 2015. By late December, Chilean miner Antofagasta PLC followed Freeport-McMoRan and agreed to the same charges.

Copper treatment and refining charges (TC/RCs) are paid to smelters by miners for the processing of copper concentrate in order to offset the cost of ore. Charges fluctuate based upon the tightness of concentrate supply.

Production starts at China’s Qulong mine

Production commenced in late December on China’s Qulong copper mine in Tibet. The Qulong copper mine alongside the Zhibula copper mine will bring operator Tibet Julong Copper Company an expected output of 120,000-130,000 metric tons of copper in 2022.

The Qulong mining complex is being constructed in two phases and is designed to become the largest global copper mine. Once Phase 1 of the Quolong mining project reaches full capacity, annual production will extend to 160,000 mt. Phase 2 of the mining project, upon completion, will have an expected annual capacity of around 260,000 metric tons.

Actual metals prices and trends

The LME three-month copper price rose by 1.31% month-over-month to $9,682 per metric ton as of Jan. 1.

Chinese primary cash copper remained at $10,916 per metric ton. Chinese copper scrap fell by 2.0% to $10,080 per metric ton.

U.S. copper producer grades 110 and 122 rose by 2.49% to $5.35 per pound. Producer grade 102 rose by 2.39% to $5.57 per pound.

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