Starting in late April, copper prices began to take out prior lows. It seemed like an attempt to find a bottom and reestablish a potential bullish reversal in the short term.

The Copper Monthly Metals Index (MMI) fell by 3.04% month over month.

Know what to do when the trend shifts. Related article: The Art of Timing Your Metal Buy 

Shanghai Remains Under Lockdown, Beijing on the Brink

Despite declining case counts, Shanghai remains under a lockdown that has continued for more than a month. Since April 22, cases within the city have remained within a “continuous downward trend,” according to the city’s vice major Wu Qing. The optimistic data could indicate that the lifting of restrictions may be around the corner.

However, Qing also cautioned that while “the epidemic has come under effective control,” the city will continue to chase China’s ongoing zero-COVID strategy. Undeterred by the larger economic impacts, Qing stated at a separate meeting, “we cannot relax, we cannot slack off: persistence is victory.”

On the other hand, Beijing’s COVID case counts continue to rise. Thus far, the capital city has managed to circumvent sweeping lockdowns like those seen in Shanghai. This is likely due to strict mitigation efforts involving closing subways, public venues, and some residential buildings

The lastest reports indicate that the current outbreak’s spread through Beijing remains slower than what was seen during the same period in Shanghai. However, rising case counts nonetheless veer ever further from China’s broad zero-COVID standard. As the virus spreads, the possibility of more extensive restrictions (and of continued economic ramifications) increases.

Caixin Manufacturing PMI Hits 2-Year Low

Copper vs Caixin

The impacts of China’s zero-COVID approach saw the Caixin Manufacturing PMI plummet to a 2-year low in April. In fact, it fell at the steepest rate since the initial onset of the pandemic in 2020. All in all, the index contracted to 46 from 48.1 in March.

As factory activity contracted, so too did China’s demand for metals. According to data released in April by the General Administration of Customs, copper imports dropped 8.8% from February to March. This trend is expected to continue through May, with little changing thus far in the way of lockdowns.

The Caixin Manufacturing PMI stands as a leading indicator of Chinese economic strength. Historically, copper prices have loosely mirrored its larger trends. The most recent decline in LME copper prices appears, at least to some extent, reflective of the most recent contraction.

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Could Copper Prices Fall Further?

China is the largest producer and importer of copper in the world. As such, the state of its economic activity has larger implications for the world’s metal markets. The recent market softness created by muted Chinese demand will likely persist until their economy emerges from lockdowns, which has yet to happen. Should the Caixin Manufacturing PMI hold as a leading indicator, copper prices will likely continue to mirror China’s manufacturing activity.

In the short term, as has happened with each wave and variant of COVID, China’s cities will eventually recover from the current outbreaks. There will, of course, likely be more. It remains to be seen what will shake China’s resolve about its current COVID mitigation strategy and when this might happen. Around the world, China remains the last major holdout in an economically restrictive approach to the virus.

In the medium term, the 20th National Congress of the CCP will occur in the fall, most likely November. As the congress is filled with Xi proteges, President Xi’s reelection appears, at this point, to be the most foreseeable outcome. However, Xi would not be the first politician to shift his policies once he secures an additional term. That being said, there is no indication that Xi will adopt a new approach to the virus at any point.

The  MetalMiner weekly newsletter covers copper developments.

Actual Metals Prices and Trends

  • The LME three-month copper price fell by 5.49% month-over-month to $9,822 per metric ton as of May 1.
  • Chinese copper bar declined by 3.65% to $11,153 per metric ton. Chinese copper scrap fell by 3.49% to $10,150 per metric ton. 
  • US copper producer grades 110 and 122 decreased by 5.6% to $5.39 per pound. Producer grade 102 fell by 5.4% to $5.93 per pound.

Following a strongly inflationary metal environment in Q1, Q2 2022 is looking like a whole different ballgame. Indeed, it’s no secret that the global economy is currently facing a number of major challenges. Alone, none of these would be enough to derail us from last year’s strong rebound. When added together, however, they’re helping to shape a far-from-rosy outlook for the 2022 metals forecast.

The “Winds” of Change?

A recent Capital Economics note to clients phrases it particularly well, stating that “all three of the world’s major economic blocs are now facing significant headwinds.” In the US, the storm stems from an increasingly-hawkish Federal Reserve. Meanwhile, the euro-zone faces mounting pressure from the recent massive squeeze in real incomes which threatens to push the region into recession.

In China, the government’s immediate challenge has been quashing the continuing Omicron outbreak. Unfortunately, the country’s zero-COVID initiative has so far done little to affect the spread of the virus. What it has done is tightened restrictions across some of the country’s biggest and most economically-important cities.

The Omicron variant is by far the biggest wave of infections to hit China, a country still woefully under-protected in terms of vaccines. According to CE, the areas impacted account for some 40% of China’s GDP and 80% of China’s exports.

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China Activity in Areas with Local Outbreaks (%)

A look at how the metals forecast might be impacted by China's COVID situation.

COVID is Just the Start of China’s Worries

Even without the lockdowns, China’s outlook is challenging to say the least. Its construction sector is struggling under extreme debt. Meanwhile, fewer young buyers than ever before see any benefit to investing in the property market. To make matters worse, exports are struggling as consumption habits adjust in overseas markets.

CE points to Amazon’s Q1 results to illustrate a return to pre-COVID demand levels as services rebound. But according to Reuters, China’s factory activity slumped at the fastest pace in two years this past March. In fact, the Caixin purchasing manager’s index slid to 48.1, its lowest reading since the first pandemic wave in early 2020. The official PMI also dipped into contraction territory, slipping below 50 for the first time this year.

New orders are falling particularly fast, reflecting both stalled domestic demand and the disruption to overseas markets. Of course, most of these disruptions result from Russia’s “special military operation” in Ukraine. Regardless, if China’s economic growth slows and industrial and construction demand weakens, the metals forecast from the world’s largest consumer will weaken as well.

Not surprisingly, metals prices have already started slipping. After reaching a high above $10,600/mt last month, copper prices today fell below $9,500. There’s no doubt about it: the bears have returned to short the market. Aluminum has followed copper’s lead despite a March surge caused by the EU’s rejection of Russian supplies. China’s woes are a factor here, too, as the country has been ramping up primary metal output. As a result, semis exports have been rising strongly.

Weighing the Metals Forecast Against Demand

Demand is the prevailing narrative in today’s metals market. As activity in all three regions continues to slow, demand for industrial metals is likely to ease. Still, whether an improvement in global logistics delays remains a leading or lagging indicator is debatable. Either way, there’s no doubt they are gradually becoming less of an issue for metal supply. The bears may be here, but the market has yet to turn their way. Q2 and Q3 will have a lot to say in that discussion.

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The MetalMiner team has broken down the significant fluctuations in the LME nickel contract this month.

But now that a few weeks have passed since the LME first suspended trading, it’s time to take a look at some other interesting trends at play on the LME and elsewhere.

In this question-and-answer session, MetalMiner’s Stuart Burns will weigh in on volume dips on the LME, the fallout from this month’s decisions to suspend trading of the nickel contract and much more.

As always, the MetalMiner team will continue to break down these issues and more in the MetalMiner weekly newsletter.


LME graphic

dizain/Adobe Stock

Three LME contracts — nickel, aluminum and copper — have all lost liquidity/volume of late. Meanwhile, the SHFE has seen increases for nickel and aluminum. COMEX seems to be the winner on copper. Has the nickel debacle hurt the LME’s credibility such that the market has moved to alternative exchanges and does this pose an existential threat to the LME?

The threat to the LME’s dominance in nickel was a point I raised last week in a post, and I agree is a valid one.

The SHFE continued to trade while the LME was closed (a point not lost on the market needing to hedge exposure). While it didn’t suffer the volatility of the LME — the shorts were nearly all on the LME, not the SHFE — the significance of having an exchange still trading while the LME was “away” can only have encouraged investors and trade to “dual source” and consider both exchanges in the future.

How this will look in 12-24 months remains to be seen. However, the situation is clearly positive for the SHFE and negative for the LME. Of that there is no doubt.

As we continue to monitor volumes and prices on the respective exchanges, the MetalMiner Insights platform features metal price data for both LME and SHFE nickel.  

The dollar’s place

Further to that point, if volume and market liquidity move to the SHFE, does that pose a risk to the value of the dollar as the world’s reserve currency. Could this hasten the toppling over of the dollar as the world’s reserve currency? 

There would only be a threat to the dollar if there were a viable alternative. Currently, there isn’t one.

The euro and yen are nowhere near as widely used. Furthermore, the RMB is a fraction of dollar trades.

Does it bring the date forward from 2075 to 2050? Maybe it helps contribute to an earlier loss of reserve status for the dollar. However, oil and most agriculturals remain in dollars and will do so for the vast majority of trades.

Saudi Arabia’s possible acceptance of RMB for its oil sales to China will result in a bilateral trade flow as the only place they can use them is buying stuff from China. That has its limitations when your whole economy relies on Western technology and equipment.

In addition to analysis and forecasting for 10 metal groups, the MetalMiner Monthly Metal Outlook (MMO) also features analysis of other factors relevant to metals markets, including currencies, oil prices, policy developments and much more.

What’s next for the LME?

Nickel liquidity/volume has nosedived at the LME. Will this be permanent? Temporary? What must the LME do to right its ship? Is there a real risk of some of its most lucrative contracts moving to other exchanges?

The trade still needs to hedge and they will come back to the LME.

Investors or speculators may be burned. Ultimately, they will come back.

Following on from the first question above, though, they may be tempted to spread bets across the SHFE. The two markets are driven by separate dynamics, though, so they are not simply geographically displaced equivalents.

If your investment strategy is driven by a perception of European supply and demand, it may not play out the same on the SHFE. The SHFE is driven by Asian supply and demand — specifically, Chinese supply and demand.

The Copper Monthly Metals Index (MMI) held flat at 119 from January to February. 

Copper prices continued to trade sideways within tighter and tighter ranges, with no clear short-term price direction. Nonetheless, copper prices remain bullish on longer time frames. 

Chilean assembly considers copper nationalization

Members of an environmental committee in Chile voted for mine nationalization on Feb. 1. The proposal for “the Nationalization and New Social Environmental Management of Copper Mining, Lithium and other Strategic Assets” passed with 13-to-6 approval.  

In spite of this early advance, the future of such a drastic change remains far from certain. Chile elected leftist President Gabriel Boric last year who will take office in March. Boric campaigned on increasing mining royalties and additional social services. Chile’s Congress, however, remains strongly divided. As such, any reforms will require moderation to pass. The nationalization proposal was widely controversial. Its adoption would require two thirds support of the full assembly. From there, it would become part of the draft charter set for a referendum vote later in the year. Chile has undertaken the process of a constitutional rewrite. The current constitution originated under the Pinochet dictatorship. 

Stop obsessing about the actual forecasted copper price. It’s more important to spot the trend

Mining royalty bill approved by Chile senate commission

Meanwhile, a mining royalty bill continues its way through Chile’s legislature. An earlier version of the bill included a 3% tax on producers whose volumes exceed 12,000 tons of copper per year. The bill also included a progressive royalty based on the copper price.  This bill passed an initial vote in late November. Following staunch industry pushback, the bill was subsequently amended. 

In the latest version, royalties would reflect the value of gross copper sales and profitability. Mines whose output levels do not reach 50,000 metric tons would remain exempt. Mines with production up to 200,000 metric tons annually, would face a tax that corresponds to 1% of annual sales. For the mines that exceed those volumes, the royalty applied would reflect the average annual LME copper price.

The bill will now go to the Senate Treasury Committee. It will then go to a plenary session of the chamber before it returns to the lower Chamber of Deputies. Should the bill successfully pass through this process, it could become law as early as March. Multiple countries including Chile have considered proposals to increase royalties and taxes on mining activity.

Stay up to date on MetalMiner with weekly updates – without the sales pitch. 

Russia looks to grow copper output

While Russia serves as a leading producer of both aluminum and nickel, it also boasts roughly 10% of the world’s copper reserves. Globally, only Chile and Peru’s copper reserves rival Russia’s. Alongside climbing copper prices and expectations of strong future demand, miners look to cash in. Russia intends to begin mining at Udokan as well as an additional Siberian reserve, Baimskaya. 

Both projects pose challenges. Udokan, among the world’s largest untapped reserves, as it holds upwards of 26 million tons of copper, requires the removal of a mountaintop to access its copper ore. Such constraints have prevented its development until now. After it was acquired in 2008 by USM Holdings and following a staggering $7 billion of investments, the mine could begin production in 2022. By 2026, annual production will reach 400,000 tons.

Baimskaya is situated within the Arctic Tundra. Its remote location poses logistics constraints as it lacks access to a railroad or port and would require a floating nuclear power plant in the Arctic Ocean to source its energy. Once complete in 2027, the mine will produce around 300,000 tons of copper annually. 

Between both projects alongside others, Russia will become the fourth-largest copper producer in the world by 2030, with total production exceeding 2 million tons per year.

Better time your metal market purchases, including copper, with the MetalMiner Insights platform. Request a demo.

Actual metals prices and trends

The LME three-month copper price fell by 1.48% month-over-month to $9,539 per metric ton as of Feb. 1.

Chinese copper primary cash remained at $10,916 per metric ton. Chinese copper scrap fell by 0.88% to $9,991 per metric ton. 

US copper producer grades 110 and 122 fell by 1.49% to $5.28 per pound. Producer grade 102 rose by 1.1% to $5.50 per pound.

This morning in metals news: LME copper prices have ticked up; the U.S. monthly trade deficit increased from October to November; and, lastly, WTI crude prices made some gains this week.

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Copper prices rise

copper mine in Peru

Jose Luis Stephens/Adobe Stock

Copper prices had trended firmly in between MetalMiner support and resistance levels for much of Q4 2021.

However, copper prices have showed signs of upward momentum.

The LME three-month copper price closed Tuesday at $9,759 per metric ton. The price had increased 2.94% month over month, MetalMiner Insights data indicate.

US trade deficit reaches $80.2M in November

The U.S. trade deficit reached $80.2 billion in November, the Census Bureau and Bureau of Economic Analysis reported.

The deficit increased from $67.2 billion in October.

Read more

This morning in metals news: copper prices have moved sideways to close 2021; meanwhile, the U.S. construction sector added jobs in November; and, finally, Northvolt said it had produced the first lithium-ion battery cell at its gigafactory in Sweden.

MetalMiner should-cost models: Give your organization levers to pull for more price transparency, from service centers, producers and part suppliers. Explore the models now.

Copper prices trend sideways

copper mine

Gary Whitton/Adobe Stock

Copper prices have consolidated and trended sideways to close the year.

The LME three-month price surged to nearly $10,300 per metric ton level in October, according to MetalMiner Insights data. The price proceeded to slide to close that month and has since trended sideways.

LME three-month copper closed Tuesday at $9,620 per metric ton, or up 0.1% month over month.

Construction employment rises

Construction employment picked up in November in a majority of U.S. metro areas, the Associated General Contractors of America reported.

Read more

This morning in metals news: U.S. Steel released its guidance for Q4 2021; U.S. job openings increased in 16 states in October; and, lastly, copper prices continue to trade sideways.

Do you know the five best practices of sourcing metals, including steel?

U.S. Steel releases Q4 guidance

U.S. Steel logo

Игорь Головнёв/Adobe Stockk

U.S. Steel said it expects its Q4 2021 adjusted EBITDA to come in at $1.65 billion.

“Next year, our fixed price contracts are resetting significantly higher, providing better earnings stability compared with competitors with more spot exposure,” CEO David B. Burritt said. “Additionally, incremental demand drivers are materializing, and we believe the steel industry super cycle will continue. Our fourth quarter guidance indicates another quarter of strong performance yet reflects a temporary slowdown in order entry activity, which we believe is related to typical seasonal year-end buying activity.”

The firm said its flat-rolled segment would deliver EBITDA of $1 billion.

“The strong performance is driven by increased flow-through of higher steel selling prices offset by cautious seasonal buying and higher raw material and energy costs,” the firm added.

Job openings rise in 16 states

U.S. jobs openings increased in 16 states in October, the Bureau of Labor Statistics reported.

Openings declined in two states and were relatively unchanged in 32 states. Hawaii, Minnesota and Kentucky posted the largest increases in job opening rates.

Copper continues to move sideways

In the copper market, copper prices have continued to move sideways over the last six weeks.

The LME copper price closed Wednesday at $9,495 per metric ton, per MetalMiner Insights data. The price fell 2.4% month over month.

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The Copper Monthly Metals Index (MMI) held flat for this month’s reading.

December 2021 Copper MMI chart

After the mid-October spike, copper prices have begun to consolidate.

Any bullish technical patterns are at risk of invalidation, as prices appear to trade consistently lower. Additionally, its failure to break out of any bullish structures within smaller time frames suggests a weakness in buyer momentum.

Until the occurrence of a strong rally to continue the long-term uptrend, copper will likely become bearish, as it cannot sustain its breakthroughs of historical resistance levels.

Stay up to date on MetalMiner with weekly updates – without the sales pitch. 

Fed may accelerate tapering

As inflationary pressures mount, the Federal Reserve may double the pace of its tapering of quantitative easing measures that were put in place at the onset of the pandemic. The Fed had started to reduce bond purchases from $120 billion per month in November on track to be completed by mid-2022.

Recent testimony from Fed Chair Jerome Powell indicated support for increasing tapering efforts, with expectations it may reach $30 billion per month following the upcoming Dec. 14-15 Federal Reserve board meetings.

The Consumer Price Index reached a 30-year high in October, expanding to 6.2%. In a recent blog post, the IMF encouraged such policy revisions, stating, “We see grounds for monetary policy in the United States—with gross domestic product close to pre-pandemic trends, tight labor markets, and now broad-based inflationary pressures—to place greater weight on inflation risks as compared to some other advanced economies including the euro area. It would be appropriate for the Federal Reserve to accelerate the taper of the asset purchases and bring forward the path for policy rate increase.”

Historically, copper prices have a positive correlation with inflation. Efforts to rein in inflation will likely add to bullish sentiment.

Read more

Chilean copper producer Codelco, the world’s largest, indicated it could see copper prices coming down in 2022.

According to a Reuters report, Codelco CEO Octavio Araneda said prices in 2022 will likely come in slightly lower than in 2021.

As we’ve noted recently, MetalMiner is hosting its final webinar of the year on Wednesday, Dec. 8, during which the MetalMiner team will overview price predictions for metals in 2022. Those interested in participating in the session can sign up on the MetalMiner Events page.

Copper prices stabilize

copper mine

Gary Whitton/Adobe Stock

Like aluminum, LME copper prices on the LME surged to $10,270 per metric ton in late October, according to MetalMiner Insights data.

The price fell back to close the month, however, closing October at $9,490 per metric ton.

Since then, the copper price has trended sideways.

From a technical perspective, LME copper trading volumes reached a November high of 145,635 as of Nov. 2. Volumes fell as low as 69,991 on Nov. 25, during which prices surged briefly and approached MetalMiner resistance levels.

However, the stronger the trading volume, the greater the significance of a corresponding price movement (and vice versa). As such, after jumping to just under $9,900 per metric ton Nov. 25, the price retreated.

LME three-month copper closed the month at $9,510 per metric ton.

Political crossroads

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Two years ago, Indonesia instituted a ban on nickel ore exports.

Now, it is contemplating banning exports of tin and copper ore, too.

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Indonesia export bans prompt tin price surge

Indonesia on a globe

zerophoto/Adobe Stock

Indonesian President Joko Widodo has been announcing from different forums that his country may stop the export of bauxite next year, copper ore in 2023 and tin in 2024.

On the heels of the announcements, the tin price has surged, MetalMiner Insights data shows. (Subscribers can find additional tin and copper analysis in the next Monthly Metal Outlook report, which will be released Wednesday, Dec. 1.)

The LME three-month tin price closed Monday at $39,450 per metric ton. The price is up 6.6% month over month.

For long, Indonesia has been a major exporter of metal ores, mostly to Asian countries, including China and Japan. The ban on nickel exports had triggered investments, mostly from China, into Indonesian nickel processing.

As part of efforts to improve the country’s external balance & attract investments into the resource processing industry, Indonesia may stop tin exports in 2024, the Indonesian President reiterated last week at the Indonesian central bank’s annual gathering.

The president has made similar statements in recent public appearances about the country’s long-term dependence on raw commodities, reducing its export earnings and employment opportunities.

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