Copper MMI: Prices Retrace as U.S. Dollar Firms
The Copper MMI (Monthly Metals Index) traded lower this month, falling two points to 87 for our March reading.
The Copper MMI fell for the second consecutive month, after the sharp increase in prices at the end of last year. In February, LME copper prices fell by 3.5%.
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The LME copper short-term downtrend does not seem that bearish when looking at the two-year chart. Copper prices retraced this month again, but still hold above the blue dotted line, which represents the trend line (prices below that line might indicate a change in trend). In December, copper prices skyrocketed and breached the $7,000/st level, confirming long-term bullish sentiment remains intact.
Meanwhile, this month, a stronger U.S. dollar added downward pressure to commodities and industrial metals. Analysts also claim the latest “bearish” downtrend occurred due to increasing LME stocks.
MetalMiner analyzes copper supply from two different perspectives: copper stocks and global copper supply.
Copper Stocks
Copper stocks at the major metal exchanges totaled 537,722 tons at the end of November 2017, reflecting a decrease of 0.3% from stocks in December 2016. In particular, LME stocks fell by 41%, while SHFE stocks increased by 12% in 2017.
However, 2018 has come with some recoveries for LME copper stocks.
Copper stocks are at a current 324,900 tons. This means LME copper stocks are 13,075 tons higher than at the beginning of 2017, and 85,500 tons higher than at the beginning of 2016.These numbers show some recovery for LME copper stocks; this information has likely fueled trading sentiment this month.
CME stocks also increased at the beginning of the year. In 2015, CME stocks were just at 20,000 tons, compared to the current 209,000-ton level. Both of these numbers (CME and LME stock levels) have moved trader sentiment.
Global Copper Supply
The Indonesian unit of Freeport-McMoran’s copper mine and Amman Mineral Nusa Tenggara (AMNT) are waiting for last-minute ministry approvals to their application for an extension to continue with copper concentrate exports. Freeport’s export order for the Grasberg mine expires this month (copper mines have to reapply for export licenses every year).
Freeport had an export quota of 1.1 million tons of copper ore concentrate ending February 2018. Exports could stop this month, but mine production could continue.
Meanwhile, the Chinese Ministry of Environmental Protection has tightened the “allowable” impurities levels further. Therefore, instead of importing scrap, China now imports unwrought copper for downstream production.
Copper supply also looks threatened in Chile and Peru, particularly if workers go on strike since labor contracts expire soon. The powerful labor union at the Escondida copper mine cast doubt on the chances of starting talks on a new labor agreement with the company before formal negotiations commence in June.
Global copper supply still shows some uncertainty with possible copper supply shortages coming in 2018. Therefore, buying organizations may want to understand the global picture rather than just considering the trend based on stock levels and actual copper supply.
What This Means for Industrial Buyers
In February, buying organizations had some opportunities to buy some volume. As long as copper prices remain bullish, buying organizations may want to buy on the dips. For those who want to understand how to reduce risks, take a free trial now to the MetalMiner Monthly Outlook.
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Actual Copper Prices and Trends
In February, most of the prices comprising the Copper MMI basket decreased.
LME copper fell this month by 3.5% to $6,890/mt. Indian copper prices decreased by 2.4% to $6..93/kilogram, while Chinese primary copper prices fell by 2.73% to $8,178.63/mt.
Prices of U.S. copper producer grades 110 and 122 decreased by 2.28%. Meanwhile, the price of U.S. copper producer grade 102 decreased by 2.17%, to $4.05/pound.
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