copper price

As copper prices have continued to rise over the last six months, copper mine production has fallen.

According to the International Copper Study Group (ICSG), copper mine production fell 1% during the first half of the year.

Furthermore, the global copper market posted a deficit of 235,000 tons during the first half of 2020, according to the ICSG.

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Mine production drops 4% in April-May

The most significant slowdown in mine production came in April and May. The ICSG estimated mine production fell 4% during the two-month period, when coronavirus-related lockdown measures affected output.

Peru, the second-largest copper producer, saw its copper output impacted by the pandemic.

“In Peru, stoppages resulting from the COVID-19 pandemic combined with operational issues/adverse weather that affected a few major mines, led to a 20% decline in mine output over the first half of 2020 including a significant decline of 38% in April-May compared to the same period of 2019,” the ICSG reported.

Mine production also fell in Australia, Canada, Mexico, Mongolia and the U.S.

Meanwhile, Chile, the top copper producer, increased its mine production by 2.6%.

Refined copper production up 1%

However, global refined copper production in the first half of the year increased by 1%.

Primary production rose 2.3%, while secondary production fell 5.2%.

“Globally, constrained scrap supply due to the COVID-19 lockdown and lower copper prices have negatively impacted world secondary refined production,” the ICSG reported.

Total refined copper output in Chile increased 12.5%.

Copper price gains

As readers of the MetalMiner Monthly Metal Outlook know, copper prices have been on the rise this year, supported by both Chinese demand and supply concerns.

The average LME cash price in August jumped 2.3% from the previous month’s average, up to $6,497 per metric ton.

The average for the year, however, remains down 4.4% compared with the 2019 annual average.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices.

copper smelter

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This morning in metals news: the copper price bounced back Tuesday after a down Monday session; ArcelorMittal issued a statement on the European Commission’s policy proposals aimed at reducing emissions; and U.S. oil exports have fallen in each month since February.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021.

Copper price recovers Tuesday

The copper price continued to move up after a down Monday session, Reuters reported.

LME copper fell 1.8% Monday but bounced back 1.4% on Tuesday.

Europe strives toward emissions targets

In other news beyond the copper price, the European Commission recently outlined its 2030 Climate Target Plan, to which steelmaker ArcelorMittal responded positively.

However, the firm also listed several factors that will make it easier for it to achieve the emissions targets.

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The Copper Monthly Metals Index (MMI) increased 5.1% for this month’s value, as copper prices continue to pick up globally.

September 2020 Copper MMI chart

LME copper prices increased throughout August, trading over $6,500/mt the last few weeks of the month. SHFE prices also increased during the same period, as local demand remained strong and refined production tightened.

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Copper prices pick up, find further support

LME copper prices declined for the first half of the month and, after increasing, traded sideways, moving from $6,439/mt at the end of July to $6,702/mt in August. The SHFE price followed a similar trend to the LME price. Both prices had not reached this level since June 2018.

Copper inventories in LME warehouses continued to decrease, closing at 89,350 tons. Stocks have not fallen to this low of a level since January 2006.

On the other hand, SHFE stocks had the exact opposite trend. SHFE stocks continued to increase throughout the month, rising to 170,086 tons this month. These trends have only accelerated in the first weeks of September.

Copper prices are partly driven by high Chinese demand. Consumption increased 14.9% year over year during the January to June period, up to 12 million tons.

Cuts on the supply side may have resulted in temporary fears in the market.

Chinese refinery capacity declined in recent months. Summer maintenance, along with concentrate supply tightening due to the pandemic, brought down refined production. Production fell by 5.3% to 814,000 tons in July, according to the National Bureau of Statistics.

China does not appear to be the only country producing less refined copper.

For example, Rio Tinto delayed the restart of its Kennecott mine in Utah due to maintenance.

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A fair part of the bull story for copper this year has been supply-side fears.

The world’s largest mines are in South America, which has suffered from catastrophic levels of coronavirus infections. True, China’s recovery has played a role in the booster’s case. So have the role of copper in the growing electric vehicle (EV) market and the weakening U.S. dollar, which has lifted all commodities.

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Copper outperforms other metals, including aluminum

But just comparing copper to aluminum, the latter lifted only in proportion to the weakening dollar. Meanwhile, copper has risen from March lows much more.

From April to date, aluminum has jumped some 20%, largely as a result of a weakening dollar and recovering Chinese demand sucking in imports.

But copper has risen some 33%, driven by the same dynamics but with the added anxiety of supply-side risks from major suppliers in South America.

Coronavirus crisis in Peru, world’s No. 2 copper producer

Adjusting for population size, two of the countries hardest hit my infections in the world have been Peru and Ecuador. Both countries have seen more than 1,000 excess deaths per million inhabitants.

The two Latin American countries also have the highest excess percentage — excess deaths expressed as a share of normal deaths for the same period — suggesting the impact on their economies, health care systems and working practices may be even more severe than the official statistics suggest.

Developing economies like Peru cannot afford prolonged or repeated lockdowns. Like India, South Africa and many other countries, containment is at best local and at worst nonexistent.

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copper mine

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After coming in at comparable levels to last year through the first four months of this year, global mine production fell in May.

The International Copper Study Group (ICSG) reported global copper mine production had dropped by 2.2% through the first five months of the year compared to the equivalent period in 2019.

Concentrate production fell by 2.5% and solvent extraction-electrowinning fell by 0.6%.

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COVID-19 impacts output in April, May

The COVID-19 pandemic began to exert a significant impact on copper mine production in April and May.

Mine output fell by an estimated 4.5% in April and by 5.8% in May.

“In Peru, stoppages resulting from the COVID-19 pandemic, combined with operational issues/adverse weather that affected a few major mines, led to a 23% decline in mine output over the first five months, with April and May registering declines of 33% and 41%, respectively,” the ICSG reported.

Meanwhile, top copper producer Chile saw its production rise 3.2% during the period.

Mine production in the Democratic Republic of the Congo increased 5.5%. Indonesia’s output rose 8%.

Balanced market

As for supply and demand, the ICSG said the global copper market was balanced through the first five months of the year.

When accounting for changes in Chinese bonded stocks, the market was in deficit by approximately 30,000 metric tons.

Copper prices continue to rise

In terms of prices, copper has been one of the fastest risers in the metals complex this year.

The average LME cash price in July reached $6,354/mt, up 10.7% from the June average, the ICSG noted. The LME price rose to its 2020 high July 13, when it reached $6,545/mt.

Are you under pressure to generate copper cost savings? Make sure you are following these five best practices. 

Zinc and lead are co-mined metals, often assessed in tandem. Zinc and copper, however, are less likely to be viewed as driven by the same fundamentals.

Sentiment, yes. All the base metals can be influenced by the same narrative, such as currency strength or China demand. It is true to say both price drivers have been at work in recent weeks across the whole metals spectrum.

But one additional factor at play this summer has been ongoing supply-side anxiety due to rising COVID-19 virus infection rates in South America.

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Rising infection rates in South America impact mining sector

Both copper and zinc rely heavily on mines in Chile and Peru for ore supplies.

That reality is a fact highlighted in a recent report, which warned that mining companies operating in Peru are being forced to keep operations suspended.

In addition, companies are halting new operations as confirmed coronavirus cases in the country surged past 300,000, with several of the new infections happening in the copper sector.

Supply-side concerns have also provided support for lead (often co-mined with zinc). This is despite a massive surge in LME inventory arriving in last July, nearly doubling stock levels to 119,000 metric tons.

Chinese demand rising as supply worries mount

Chinese investors, in particular, are seeing a convergence of rising Chinese demand and rising supply-side anxiety.

A simultaneous fall in SHFE inventory and a rise in refined metal imports supports the rapid recovery story in China.

According to Reuters, SHFE zinc stocks currently stand at 89,188 metric tons. The stock level fell by 81,000 tons from the March highs at the height of China’s coronavirus-related lockdowns.

The flow of Beijing’s stimulus funds is, to a great extent, driving sentiment. Zinc ticks the construction and infrastructure boxes in the form of galvanized steel.

Despite a fall in automotive demand last year, the sector appears to be experiencing its own sharp recovery. Sales rose 11.6% in June on the back of strong demand for trucks and commercial vehicles.

Not surprisingly, China’s refined zinc imports have started picking up over the last two months.  June imports totaled 64,700 metric tons, the highest monthly total since August 2019. Imports of zinc concentrates, by contrast, fell 40% month over month to 213,000 tons. Dropping concentrate imports supports the narrative of lower availability from countries such as Peru, where production has been hit hard by quarantine measures.

LME inventory on the rise

While net long positions on the LME are modest at just over 6,000 tons, it should be said that until recently, the story outside of China was more cautious.

LME inventory has been rising to nearly 200,000 metric tons — the highest since October 2018.

Rising inventory suggests demand outside of China remains subdued.

The World Bureau of Metal Statistics reported last month the zinc market was in surplus by 126,000 tons during the January-May 2020 period. Meanwhile, the market recorded a deficit of 63,000 tons in the whole of the previous year.

Reuters quotes the International Lead and Zinc Study Group (ILZSG) estimate that the global refined zinc market registered a supply surplus of 241,000 tons in the January-May period alone. Meanwhile, CRU is forecasting a 485,000-ton surplus over the course of the year. The median forecast in a Reuters poll of analysts in July suggested a surplus of 403,000 tons.

Whether China can soak up that kind of surplus remains to be seen. While much uncertainty remains about the ongoing impact on supply, the case for scarcity and, therefore, support for prices seems stronger for copper than for zinc and lead, despite all of them benefiting from supply-side worries.

Stop obsessing about the actual forecasted copper, zinc or lead price. It’s more important to spot the trend. See why.

The Copper Monthly Metals Index (MMI) increased 5.4% for this month’s MMI reading.

August 2020 Copper MMI chart

LME copper prices increased through the first half of July and have traded sideways since mid-July.

However, the price remains well above $6,000/mt. Chinese demand remains strong and market sentiment remains positive.

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Will prices temporarily slow down?

LME copper prices continued to rise throughout July. The price reached a 14-month high by surpassing the $6,400/mt level.

SHFE prices followed a similar trend.

However, the price increase seems to have slowed. LME and SHFE prices have trended sideways for the last three weeks.

Copper inventories in LME warehouses decreased nearly 60% to 128,125 tons in July, reaching the same low levels seen in mid-January.

On the other hand, SHFE stocks had the exact opposite trend. SHFE stocks increased by 60% to 159,513 tons by the end of the month. This could be due to the fact that even though demand in China remains strong, it tends to have a seasonally weak demand period from June to August. During that period, in which construction slows due to the hot and rainy summer (as MetalMiner reported last month).

Another factor contributing to the price slowdown is that despite positive sentiment toward economic recovery in the next few months, the rest of the world needs to show more signs of demand improvement.

Moreover, a week ago, the Brent crude market appeared to have moved back into contango.

This could signal the demand recovery expected for the second half of 2020 could appear too optimistic, which may bring some negative sentiment to copper prices.

China sets a copper imports record

Another explanation as to why LME stocks remain low while SHFE stocks have surged involves China’s record copper imports in July.

Reuters reported China imported 762,211 tons of raw copper and copper products in July, a 16.1% increase from the previous month.

High demand from the Chinese manufacturing industry and durable goods sectors drives the high import levels. However, the main driver may have been the arbitrage between the LME and the SHFE prices.

Chilean copper supply takes a hit

The National Statistics Institute (INE) of Chile reported at the end of July that copper production had declined 0.6% to 472,172 metric tons in June.

July marked the first month since the beginning of the pandemic that copper production in Chile saw little impact due to the coronavirus. Until now, Chile served as the only main producer that did not implement temporary shutdowns. However, throughout June, producers had to scale down as some reported coronavirus-related fatalities.

Despite Chile being one of the hardest-hit countries in South America, coronavirus cases seemed to have peaked in mid-June. As such, production could ramp up later this year.

Actual copper prices and trends

Copper prices continue to rise, with the Copper MMI value increasing 5.4% over last month.

Japan’s primary cash price increased 7.0% month over month to $6,640/mt.

U.S. producer copper grades 110 and 122 increased by 4%, resulting in a $0.14/pound increase for both to $3.66/pound. U.S. producer copper grade 102 increased by 3.7% to $3.88/pound, compared to $3.74/pound last month.

Indian copper cash prices increased by 8.3% to $6.68 per kilogram.

Korean copper strip increased by 0.4% to $7.42 per kilogram.

The Chinese copper primary cash price increased by 4.3% to $7,283/mt.

Does your company have a copper buying strategy based on current copper price trends?

Monthly Metal OutlookThis morning in metals news: the latest MetalMiner Monthly Metal Outlook report is out; Steel Dynamics has acquired a Mexican metals recycling company; and copper prices bounced back off three-week lows Monday.

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copper smelter

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The copper price has been among the fastest risers among base metals this year, aided in large part by the economic recovery in China.

In its latest reporting, the International Copper Study Group (ICSG) noted the LME average cash price in June rose 9.7% from the previous month, up to $5,742.39/mt.

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This morning in metals news: Rio Tinto announced it will wind down operations and eventually close its New Zealand Aluminum Smelters; copper prices are surging; and the Pilbara Ports Authority reported June shipping data.

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