Copper set to rule around $10,000 a tonne in the short-term

Copper prices are set to rule firm around $10,000 a tonne in the short-term as inventories have hit a record low following production cuts in the wake of power crunch in Europe and China despite a drop in manufacturing activities.

In addition, China imported a record 4.06 lakh tonnes (lt) of unwrought copper and copper products last month after five months of continuous decline.

LME stocks

On the London Metal Exchange, copper for cash was quoted at $10,500 a tonne during the weekend, while the three-month contract opened at $10,325 on Monday morning. Other contracts - 1 month to six months- also ruled at over $10,000 a tonne, giving rise to fears that the metal will stay firm around these levels over the next couple of months.

LME stocks were at 1,81,400 tonnes with cancelled warrants, which means they have been earmarked for delivery, at 1,67,250 tonnes leaving live warrants at 14,150 tonnes. The stocks have nosedived to a 47-year low on the LME, while in Shanghai, they are down to their lowest in 14 years.

The metal — used in construction, electricity, electronics, automobiles and new energy products — has gained 36 per cent since the beginning of the year and 55 per cent year-on-year.

Commodities market likely to be volatile until early next year

Price outlook raised

According to ING Think, the economic and financial analysis arm of Dutch multinational financial and Banking Services firm ING, inventories are continuing to drop on fear that rising prices might lead to buyers pulling out the stocks.

Copper’s surge has resulted in its price outlook being raised. Last month, Fitch Solutions Country Risk and Industry Research, a Fitch Group unit, increased its copper price forecast for this year to $9,200 from its earlier projection of $8,700. The increase has been made as copper prices “remain elevated over tight inventories despite having stabilised since reaching historical highs in May”, it said.

Fitch Solutions said global copper inventories are tight and the situation could ease only a tad in the current quarter, if at all. “This is due to lower Chinese refined supply, with smelters halting production on the back of the Chinese government's power crackdown in order to cut emissions and ration power amid high coal prices ahead of winter,” it said.

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ICSG data

According to the International Copper Study Group (ICSG), preliminary data indicate that world copper mine production increased by 4.9 per cent in the first half of this year and since June, output was up following the easing of Covid pandemic lockdowns.

ICSG said as per preliminary data global refined copper production increased by 3.2 per cent in the first half, mainly on the hack of Chinese output rising six per cent. At the same time, refined copper usage was up by 3.8 per cent.

China energy crunch may boost overseas metal producers

The study group said the copper market was “essentially balanced”, though based on “apparent” China usage there was a 2,000 tonnes deficit. The Chinese bonded house stocks indicated a surplus of 58,000 tonnes in the first half, ICSG said.

By the end of August this year, copper stocks with major metal exchanges — LME, COMEX and Shanghai — were 3,81,210 tonnes, up 52 per cent compared with the volume held during the end of December 2020. Copper stocks were up 139 per cent on LME and 10 per cent on Shanghai, while dropping by 34 per cent on COMEX.

Supply woes

Fitch Solutions said “idiosyncratic” supply issues in Latin America continued to persist, keeping seaborne concentrate supply tight and preventing global copper mine output from reaching pre-Covid levels.

“For instance, in September, Chinese miner MMG announced it will likely halt operations at its Las Bambas copper mine (which accounts for 2 per cent of global copper concentrate production) in Peru as community protests in the nearby province of Chumbivilcas affected supply logistics,” the Fitch group unit said.

Supplies were also affected by strike over wage dispute in Chile over the last few months, resulting in lower production from the Escondida, Cerro Colorado and Andina mines. These issues have now been resolved, though.

ING Think said fears of inflation could increase the demand for metals as there is a perception that they are a hedge against inflation, which is especially true for copper.

Slowing growth

Fitch Solutions said curbs on power consumption in China will likely be eased once winter gets over. It will also result in smelters increasing production.

ING Think said increased electrification of industry and transportation will mean the need for further investment in the power grid, which will prove beneficial for aluminium and copper demand

The Fitch Group unit said slowing global growth momentum and declining Chinese copper demand will likely narrow the global copper deficit and pressure prices next year.

Chinese “apparent” consumption of copper has declined by 5.7 per cent year-on-year in the first eight months of the year. The strongest decline of 21.6 per cent was witnessed in August this year compared with the same period a year ago.

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