copper price

The copper market has been sending mixed messages for the last year and the start of 2017 is no different. Consumers had gotten used to lower prices and the narrative of new mine investment swamping lackluster demand growth, only to be surprised on the upside last year by strong demand – both physical and speculative – out of China.

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As Andy Home of Reuters commented this week, maybe more surprising was the lack of supply disruption. Usually the copper market can expect something like 5% of annual production to be disrupted by labor disputes, bad weather, government interference, power outages or simply falling ore grades impacting production, but 2017 saw a low level of unscheduled production losses, in the region of 3.5%, and yet copper prices continued to rise.

Where is Demand Really at?

Demand on the other hand has also surprised on the upside, according to HSBC demand in top consumer China last year was stronger than anticipated due to a greater government stimulus impact on the power grid investments and higher end use demand, particularly for appliances and consumer goods. A tax incentive on small cars boosted Chinese auto sales in 2016 and since the government extended the initiative to 2017 at slightly higher tax rate (7.5% vs 5% in 2016) this stimulus is thought likely to continue. Read more

Our January MMI report saw almost universal price pull backs in December, but that’s to be expected in a bull market with active investors.

The monthly MetalMiner IndX showed only moderate (less than 4%) price falls, even though they were visible across almost all the sub-indexes.

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The price prospects for most of the metals we track remain strong and we have already seen some renewed price increases since we initially published our sub-index reports starting on the first of the year.

The Chinese economy and the strong dollar continue to power the metals bull market… at least for now. Happy new metals year!

Set of copper pipes of different diameter lying in one heap

Copper prices increased last week on the heels of Chinese data indicating inflation growth, reassuring strong demand from the world’s largest consumer of the metal.

According to a report from MarketWatch, copper for March delivery grew 2.9% on the Comex division of the New York Mercantile Exchange last Tuesday, which was the largest one-day increase in nearly two months.

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“The 2017 growth rate was supported (by) much faster than expected project ramp ups in Peru in particular, and much lower than statistically normal rates of production losses through the year,” Citi wrote, according to the news source. “We believe both of these factors will be difficult to replicate in 2017.”

Overall, a weaker dollar was supporting metals and, in the short-term, a reduction in copper stocks in LME warehouses indicates a tighter market, which could further boost prices.

Copper Bounces Back from December

Our own Raul de Frutos wrote recently that copper prices declined some in December, along with other industrial metals, but the bull narrative is still in effect:

“The recent price decline in copper prices wasn’t that dramatic. So far, it seems like the bulls are still in control. A strong dollar and a possible slowdown in Chinese demand are factors that could bring prices down. Up until now, China’s demand looks strong and the dollar hasn’t had a big impact on metal prices. Therefore, we need actual reasons to turn bearish on copper,” he wrote.

How will copper and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Copper prices retraced in December. After the huge price run in November we were expecting to see some profit taking as prices need to digest gains.

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So far, the decline has been limited, with prices holding above $5,500/mt. Although copper has lost some of its post-election gains, it still managed to end 2016 with decent yearly gains, suggesting that sellers are not totally in control.

Copper’s Bullish Narrative

One of the key factors supporting copper prices is the earlier-than-expected supply deficit. While most analysts were previously projecting the copper markets to move into deficit by the end of the decade, many of them are now expecting a deficit as early as this year.

Another factor supporting copper prices is higher energy prices. Oil prices, the main benchmark for energy prices, regained the $50/barrel level in December. Saudi Arabia said it could be ready to cut output more than originally agreed upon at the latest Organization of Petroleum Exporting Countries meeting. Non-OPEC countries, including Russia, also agreed to an output cut north of 500,000 barrels a day. Energy is key in the metals industry. For copper, energy can form almost 20% of the production costs.

 

I get it, you are thinking of what you are going to get your family for Christmas. However, Santa is bringing you good opportunities to buy some metals. Don’t miss them.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Base metals entered a bull market earlier this year. The real driver of this bull market has been the stronger-than-expected Chinese demand. Markets underestimated Beijing’s determination not to disappoint on its growth numbers. Thanks to the country’s increase in infrastructure spending, industrial metal prices are getting a tailwind.

The metals rally particularly extended in November. However, prices don’t just move in a straight line. If they move up quickly, buyers are tempted to take their profits until markets digest those gains. This is normal price action and why we normally see prices moving in a zig-zag. In the second half of December, there’s already been some profit taking and as prices pull back, buyers can find good opportunities to time some purchases. Let’s take a few examples:

Copper

Copper prices could find support soon

Copper prices could find support soon. Source: MetalMiner analysis of Fastmartkets.com.

Almost no analyst was bullish on copper prior to this rally, but it seems that the market now sees the possibility of a market deficit next year as almost no supply is due to come on-stream while demand seems robust.

Copper prices exploded in November. After this stellar rally it was normal to expect some selling pressure. However, if the bulls are still in control, they should come back to support prices soon. If prices start to rebound from these levels, copper buyers will find a good opportunity to buy some volume.

Zinc

Zinc prices pullback near support levels

Zinc prices pullback near support levels. Source: MetalMiner analysis of Fastmarkets.com data.

According to the International Lead and Zinc Supply Group, the global market for refined zinc metal was in deficit by 277,000 metric tons from January to October 2016 with total reported inventories falling by 53,000 mt over the same period. The Group anticipates that global usage in 2016 will exceed production by 349,000 mt and expects the market to remain in a deficit of 280,000 mt next year.

During this year’s rally, zinc buyers had several opportunities to buy forward. Buyers now need to pay close attention to the recent price pull back. If you see a rebound in prices near that support level, that would be a good time to buy some volume.

Lead

Lead prices pullback near support levels

Lead prices pullback near support levels. Source: MetalMiner analysis of Fastmarkets.com data.

Zinc’s cousin, lead, is also retracing near an area where we should see investors coming in to support prices. If this year’s bull market is set to continue, which for now we continue to expect it to do so, lead buyers will find a good opportunity to time their purchases if prices rebound at these levels.

Nickel

Nickel prices pull back near support levels

Nickel prices pull back near support levels. Source: MetalMiner analysis of Fastmarkets.com data.

The Philippines’ output of nickel ore fell 16% in the third quarter from a year earlier, as a result of several mine suspensions due to environmental violations. The country has already stopped work at 10 of its 41 mines, eight of which are nickel mines. 20 More mines, 14 of which mine nickel, could see their licenses suspended.

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In December prices are retracing, but if this uptrend is to continue investors will likely find these levels attractive to buy nickel, lifting prices.

What This Means For Metal Buyers

Once you identify you are in a bull market, buying in the dips is usually a good strategy to satisify some of your metal requirements. As metal prices pull back in December, metal buyers might find good opportunities to time purchases if momentum turns upwards again.

 

The Organization of Petroleum Exporting Countries‘ efforts to hold market share in Asia by keeping its customers, which take about two-thirds of its exports, supplied amid wider output cuts could prolong the global fuel glut and frustrate its attempt to bolster prices.

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Saudi Arabia, the defacto leader of OPEC will target its supply cuts at refiners in the U.S.and Europe rather than Asia. Ally Kuwait is following a similar strategy, and OPEC’s second-largest producer Iraq is even raising exports to Asia.

Vedanta Ordered to pay $100 Million Over Copper Mine

Konkola Copper Mines, owned by Vedanta Resources, has been ordered by a London court to pay the Zambian government more than $100 million for a claim related to the copper price, a state-owned company involved in the dispute said. The claim relates to outstanding payments under a 2013 copper price participation settlement agreement between KCM and ZambiaConsolidated Copper Mines Investments Holdings (ZCCM-IH).

Set of copper pipes of different diameter lying in one heap

Set of copper pipes of different diameter lying in one heap

Copper prices experienced an increase to close out the week due in part to hope for stronger Chinese demand and a rally in crude oil.

According to a recent report from Dow Jones Business News, China consumes roughly 45% of global copper supplies and economic trends in the Far East suggest a significant effect on prices for the industrial metal.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

“Right now the markets look rosy and there seems to be a reluctance to stand in the way of the move higher,” Matt France of brokerage Marex Spectron told Dow Jones. Also of note, growing crude prices have provided a boost to commodities with copper prices rising alongside oil.

The reason? According to the news source, the majority of investors buy and sell broad bundles of commodities and oil is typically involved, which leads to an effect on other commodities, in this case, copper.

Even Stronger Copper Prices on the Horizon?

This week’s developments for copper is nothing new as the metal has been rising strongly for the past month or more. Writes our own Stuart Burns:

“Copper consumers, of course, would like to know what they can expect for copper prices next year. Will they fall back or continue to be supported? So a letter yesterday to the Financial Times from Simon Hunt, one of the most experienced and respected analysts in the market, is of interest.”

How will copper and base metals fare for the remainder of 2016 and into 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Changes in the outlook for copper’s supply-demand balances that drove a recent rally in prices support a more “bullish” environment for the metal at least until mid-2017, Goldman Sachs said in note to investors last week.

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“Although it is tempting to blame this on speculative positioning, the materially stronger fundamental developments that contributed to this surge in speculative interest are likely to underpin a more bullish environment for copper,” Goldman analysts wrote in a note dated Sunday. It’s a flip-flop for Goldman which was previously a copper super-bear.

Steel Imports in November

Based on the Commerce Department’s most recent Steel Import Monitoring and Analysis (SIMA) data, the American Iron and Steel Institute (AISI) reported recently that steel import permit applications for the month of November totaled 2,862,000 net tons. This was a 1.2% decrease from the 2,895,000 permit tons recorded in October and a 5.5% increase from the October final imports total of 2,713,000 nt.

Import permit tonnage for finished steel in November was 2,274,000, up 0.8% from the final imports total of 2,256,000 in October. For the first eleven months of 2016 (including November SIMA permits and October final data), total and finished steel imports were 30,379,000 nt and 24,322,000 nt, down 16.5% and 17.3%, respectively, from the same period in 2015. The estimated finished steel import market share in November was 27% and is 26% on the year-to-date.

After rising strongly for the last month or more, copper prices now appear to be buffeted by every scrap of news that comes out.

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“Copper prices fell this week as investors cashed in gains after the previous session’s rally,” news.com in Australia reported yesterday. The gist of the argument seems to be the 23% rise in the copper price last month was a step too far. The site quoted Caroline Bain of Capital Economics saying “You only have to look at the levels of investor buying to see that quite a lot of these rallies have been based on euphoria rather than grounded in fundamentals. We think we will see some profit-taking inevitably as we end the year”

Reuters, on the other hand, took a somewhat contrary view, reporting copper prices climbing mid-week, buoyed by a pickup in U.S. manufacturing. The newspaper reported new orders for U.S. factory goods recorded their biggest increase in nearly 1-and-a-half years in October, evidence that the manufacturing sector is gradually recovering after a prolonged downturn and as demand signals from China also improve. Read more

The copper market will go into deficit by 2020, just when Rio Tinto‘s, extension to the Oyu Tolgoi mine in Mongolia comes online, the company said on Tuesday.

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The Anglo-Australian mining major gave approval in June for a $5.3 billion expansion of Oyu Tolgoi, one of the world’s largest copper mines and a project central to the major’s efforts to become less dependent on iron ore.

Traders Still Skeptical of OPEC Output Cut

The Organization of Petroleum Exporting Countries‘ output set another record high in November, rising to 34.19 million barrels per day from 33.82 million bpd in October, according to a Reuters survey.

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Oil prices pared losses slightly after inventory data released late Tuesday from the American Petroleum Institute showed U.S. crude stocks dropped more than expected last week despite a hefty build of 4 million barrels in Cushing, Oklahoma.