copper price

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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.

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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?

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