Copper MMI: Copper Price Rally Falters

The Copper Monthly Metals Index (MMI) moved sideways from August to September as the index rose 1.13%. Meanwhile, copper prices remain steady.

Copper prices began to slide at the beginning of September. This came after they caught a temporary bounce in late summer. Prices then began to break through short-term lows, indicating the potential for further price declines. Still, markets remain highly volatile amid competing macroeconomic pressures.

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Energy Crisis Threatens Europe’s Metal Sector

Although energy-intensive metals like aluminum and zinc remain most at risk from soaring European energy prices, the gravity of the crisis appears capable of threatening the continent’s entire metal industry.

According to Guy Thiran, Director General of the European non-ferrous metals trade association Eurometaux, “European metal producers are already preparing for a life-or-death winter.” Thiran added that “any further reduction of European metals production risks being permanent, threatening job losses and knock-on impacts on a complex web of essential and strategic EU value chains – from medical equipment and critical infrastructure to automotive and aerospace.”

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Impact on Copper and Copper Prices

For copper, the energy crisis presents three primary challenges. The most immediate is that high energy prices will translate to increased input costs for European producers. Roland Harings, CEO of Europe’s largest copper producer, Aurubis AG, told investors those costs would eventually pass down to consumers.

For this year, Aurubis hedged roughly two-thirds of its electricity costs. However, Europe’s crisis will likely resolve itself in the near term. This would mean prices could see sharp increases by next year. While copper ingot prices have been in decline since late August, European sourced products will likely begin to carry a premium over their global counterparts. Over time, this could deteriorate Europe’s role within the global supply chain.

Additionally, price pressures on consumers will continue to weigh on both demand and copper prices. Indeed, the Eurozone Manufacturing PMI remained in contraction territory for the second consecutive month, closing August with a score of 49.6. This represented the lowest reading since June 2020. The main impetus for the drop was a sharp contraction of new orders.

Some European businesses have already noted a three-fold increase in energy bills just this year. According to Goldman Sachs, average monthly household energy bills in Europe could rise from 160 euros in 2021 to upwards of 600 euros in 2023. Increasingly less affordable energy prices ahead of and into the winter months will likely lead the continent into a recession. The continued demand declines that result will almost certainly push prices lower.

Europe Feels the Energy Crisis Strain

As has already occurred with numerous aluminum, zinc, and steel producers, shutdowns remain a real possibility. Harings called this a “worst-case scenario outcome” in his comments to investors, suggesting any such shutdowns would be “very controlled.” Meanwhile, Aurubis continues to lobby politicians and regulators for capped energy prices, which could insulate the industrial sector from the current crisis. How the sector fares as a whole will largely depend on whether or not European countries adopt a protectionist approach to such industries as it manages limited energy supplies.

The MetalMiner weekly newsletter covers copper developments.

Chile Rejects New Constitution 

In a historic Sept. 4 referendum, Chilean voters overwhelmingly rejected the country’s proposed new constitution. A resounding 62% of voters and all 16 regions of Chile voted to reject the document, leaving many to wonder how this will affect copper prices?

A vote to approve the new constitution would have likely helped support prices amid the current market uncertainty. After all, most bull narratives for copper are underpinned by waning supply against growing demand. This is primarily due to the green energy movement. While annual copper output within Chile has been in a downtrend since 2018, the new constitution would have increased mining restrictions and impeded foreign mine investment. Chile accounts for roughly 28% of global copper output, making it the world’s largest copper producer.  

The constitutional rejection means market dynamics will remain unchanged within Chile. However, in a broader sense, it could also indicate collapsing momentum of the leftward swing within Chilean politics. President Gabriel Boric vowed to work with Congress for a “new constitutional process.” However, future drafts will likely be far less progressive after such a resounding defeat.

Biggest Moves in Copper Prices

• Chinese copper scrap prices rose by 2.24% to $7,792 per metric ton as of September 1. 
• Korean copper strip prices increased 1.3% to $9.67 per kilogram.
• Meanwhile, Chinese copper wire prices declined 1.99% to $8,952 per metric ton.
• Chinese primary cash copper prices fell 2.08% to $8,965 per metric ton.
• Indian primary cash copper prices dropped 2.68% to $8.06 per kilogram.

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