Tag: Chinese copper

Reversal in Chinese Copper Exports May Signal Price Stability

Reversal in Chinese Copper Exports May Signal Price Stability

Copper prices have been on the decline this summer, depressed by reports of oversupply and, worse, an exodus of inventory from top consumer China.

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Indeed, we recently wrote about the rise of metal coming out of Shanghai bonded warehouses ending up in London Metal Exchange stocks around Southeast Asia, leading to a 60% increase in LME stocks last month.

Why Are Exports Slowing?

We speculated this was probably a result of slowing domestic demand and unwinding of financing deals. But a recent Reuters article reports that exports have slowed and imports of refined copper have picked up in China after the price plunged to 12-month lows last month.

Reuters suggests this is due to price declines taking copper into territory where investors once again feel it is oversold and, on the back of a pick-up in demand after the summer, ripe for restocking.

[caption id="attachment_80886" align="alignnone" width="300"]Source Reuters Source: Reuters[/caption]

The article states a flood of new supply will still prove too much for the copper price and 2017 will see prices remain under pressure.

Reuters may well be right, but Chinese exports were a contributing factor in recent declines and a reverse could lend support for prices, if not to rise then to stabilize around current levels, at least for the second half of 2016.

What Does This Mean for Copper Prices?

CRU appears to agree saying slowing demand in the second half compared to the first half will carry through in to 2017 but that prices could rise from current sub $4,600 to average $4,700 in Q4, before weakening again next year to $4,500.

Local prices in China are still below global prices, meaning traders take a loss when they import metal, so a rise in imports is certainly a positive price signal. China, while remaining a net importer, is becoming a significant producer, refining metal from concentrate.

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Chinese demand also remains the chief determinant of prices, but even China — consumer of half the world’s supply — will struggle to overcome the surplus of supply next year. With little evidence to suggest Chinese demand is going pick up dramatically CRU are probably right that even if prices pick up a little in Q4 we are set for further weakness next year.

China Set to Begin Exporting More Copper; US Steel Import Market Share Up

China Set to Begin Exporting More Copper; US Steel Import Market Share Up

Steel imports are up and China may soon send a shock to copper markets by selling its stockpiles of the red metal.

China Could Send Shock to Copper Markets

China may be about to shock the global copper market by unleashing some of its stockpiles of the metal, which are near record highs according to sources inside the secretive government warehouses, onto the global market.

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Four traders of copper, including two from state-owned Chinese smelters, said they expect China to raise its copper exports — which are usually tiny — in the next few months. China’s refined copper exports averaged less than 10,000 metric tons a month in the first two months of 2016, and around 17,000 a month in 2015.

Market watchers are concerned that such a supply shock could stunt or even reverse recent price gains the red metal has made.

Steel Imports Up in March

Based on the Commerce Department’s most recent Steel Import Monitoring and Analysis (SIMA) data, the American Iron and Steel Institute reported today that steel import permit applications for the month of March total 2,969,000 net tons.

This was a 23% increase from the 2,414,000 permit tons recorded in February and a 30% increase from the February final imports total of 2,276,000 nt. Import permit tonnage for finished steel in March was 2,120,000, up 1% from the final imports total of 2,099,000 in February. For the first three months of 2016 (including March SIMA and February final), total and finished steel imports were 7,894,000 nt and 6,448,000 nt, respectively, each down 33% from the same period in 2015. The estimated finished steel import market share in March was 24% and is 25% 0on the year-to-date.

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Finished steel imports with large increases in March permits vs. the February final included standard rails (up 387%), cut lengths plates (up 62%), sheets and strip all other metallic coatings (up 19%), heavy structural shapes (up 16%) and wire drawn (up 11%).

Copper MMI Rises On Oil Rally, Is it For Real?

Our Copper MMI jumped 5% to 62 points. Copper prices finally made some gains in March, rising to the highest level in four months. So what’s causing copper prices to rise? and, is this finally a legit rally?

Fundamentals Improving?

Trade data showed some glimmers of optimism for copper producers as China’s February copper imports surged 50% year-over-year. Many people see the rise in imports as a sign of demand picking up. However, while imports rose, Shanghai Futures Exchange inventory levels hit new records. This seems to suggest that Chinese copper imports are rising but they aren’t backed by end-user demand.

Copper_Chart_April-2016_FNL

There are also opinions that copper is rising on expectations of a future supply deficit. Some people believe that the market will get into deficit in 2017 as no new mines came onstream due to low prices.

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However, those are just long-term expectations and things might end up looking quite different to what people are forecasting now. So far, most would agree that copper-output cuts spurred by lower prices aren’t enough to end a surplus this year.

It’s All About Oil

You can drive yourself crazy finding the reasons that explain the oil rally. Indeed, you can probably find fundamental reasons to be either bullish or bearish on copper. However, in a market driven my macro-factors, it’s quite clear to us that this rally is not reflecting a change in copper’s fundamentals.

[caption id="attachment_77923" align="aligncenter" width="500"]Crude oil (in black) versus copper (in blue) 1 year out Crude oil (in black) versus copper (in blue), one-year out. Source: @StockCharts.com.[/caption]

In the chart above we can see the huge correlation between copper and oil prices. Rising oil prices are the main explanation for rising copper prices. Investors are keeping a close eye on oil and its price movements have a huge impact on the performance of other commodities, including copper.

Legitimate Rally?

We recently pointed out that oil prices could struggle near $40/barrel and pull back. Over the past few days we just saw that, oil falling back down to the $30s, which also brought copper back below $5,000/mt.

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Copper’s rally is still normal in the context of a bear market. Indeed, exactly one year ago we saw a similar rally in copper prices that soon enough translated into a price slump. The beginning of March was a good opportunity to buy some volume but it’s still not clear if copper will be able to trade well above today’s levels. That will likely depend on the fate of oil prices and investors’ sentiment on commodity markets.

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Iraqi Oil Minister: OPEC Will Not Cut Production

Iraqi Oil Minister: OPEC Will Not Cut Production

The Organization of Petroleum Exporting Countries (OPEC) will not limit its oil production, an official said this weekend but there may be more cuts coming for Chinese copper smelters.

OPEC in the New Year

OPEC will stick to its decision on Dec. 4 to maintain a policy of not limiting production, despite the drop in global prices, Iraq’s oil minister said on Sunday, adding that any output reduction aimed at boosting prices would have to be coordinated with non-members.

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“‎We are in a real world, OPEC is not the only producer or the only player. So we have to see what the decisions of others should be — Russia and the United States and other producers,” Adel Abdul Mahdi told Reuters on the sidelines of an Arab oil producers’ meeting in Cairo.

Chinese Copper Smelters Might Cut More Production

9 Large copper smelters in China have agreed that they could deepen planned production cuts next year beyond 350,000 metric tons proposed earlier if prices and profitability deteriorate, an executive at one of the smelters told Reuters on Saturday.

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