The copper market continues to find support from the increase demand support from Chinese market and supply disruptions in copper mining in major supplying countries. Copper started the year with an impressive performance in Jan’17, but unfortunately plunged soon in the following months through May’17. Widely considered an economic barometer, Copper posted a dismal performance in the first quarter, hurt by disappointing economic data releases from China and rising inventories at both LME and Shanghai warehouses. But, the reports of supply disruption at world’s biggest copper mines - Escondida mine in Chile and Grasberg mine in Indonesia and the improving numbers in the subsequent months provided temporary respite and since then, the market is on the Bull Run. After a turbulent August, in which the prices for nonferrous metals seemingly knew only one direction and copper meanwhile marked a new three-year high, the situation calmed down again noticeably in the course of September. The price for copper is currently indeed lower, but appears to be consolidating at this level. Exaggerations had previously repeatedly been reported; therefore, a correction was seen as overdue. In September, there was basically little situation-changing news.
The supply side continues to haunt the copper market and support the bullishness in the copper prices. World mine production is estimated to have declined by around 2 per cent in the first half of 2017, with concentrate production declining by around 1.7 per cent and solvent extraction-electro-winning (SX-EW) declining by around 3.5 per cent. The decline in world mine production was mainly due to a 9 per cent (245,000 MT Cu) decline in production in Chile - the world’s biggest copper mine producing country, negatively affected by the strike at the Escondida mine and lower output from Codelco mines, decline in Canada and Mongolia concentrates production of 22 per cent and 21 per cent, respectively, mainly due to lower grades in planned mining sequencing, 9 per cent decline in Indonesian concentrate production as output was constrained by a temporary ban on concentrate exports that started in January and ended in April and about 10 per cent decline in production in the United States mainly due to lower ore grades, reduced mining rates and unfavourable weather conditions at the beginning of the year. However these reductions in output were partially offset by a 9 per cent and 7 per cent rise in Mexican (concentrate and SX-EW) and Peruvian (concentrate) output, respectively, with both countries benefitting from new and expanded capacity that was not yet fully available in the same period of last year. Globally, mine production has improved in the 2nd quarter of 2017 as compared to 1st quarter 2017 but is still 1 per cent below that of the 2nd quarter 2016.
World refined production is estimated to have remained essentially unchanged in the first half of 2017 with primary production (electrolytic and electro-winning) declining by 1.5 per cent and secondary production (from scrap) increasing by 12 per cent. Increased availability of scrap allowed world secondary refined production to increase, notably in China. The main contributor to growth in world refined production was China (increase of 7 per cent), followed by India (9 per cent) and Mexico (10 per cent) where expanded SX-EW capacity contributed to refined production growth. However, overall growth was partially offset by a 12 per cent decline in Chile, the second largest refined copper producer, where both primary electrolytic refined production and electro-winning production declined. Production also declined in the third and fourth world leading refined copper producers, namely, Japan (-4 per cent) and the United States (-10 per cent). On a regional basis, refined output is estimated to have increased in Asia (5 per cent) and in Europe (including Russia) (3 per cent) while declining in the Americas (10 per cent) and in Oceania (6 per cent) and remaining essentially unchanged in Africa.
World apparent refined usage is estimated to have declined by around 2 per cent in the first half of 2017. Preliminary data indicates that world ex-China usage might have remained essentially unchanged, however China apparent usage (currently representing almost 50 per cent of the world refined usage) declined by 4 per cent. Chinese apparent usage (excluding changes in unreported stocks) declined by 4 per cent because, although refined copper production increased by 7 per cent, net imports of refined copper declined by 27 per cent. Among other major copper using countries, usage increased in India, Japan and in the United States but declined in Germany. On a regional basis, usage is estimated to have declined in Africa by 3 per cent, in Asia by 2 per cent (when excluding China, Asia usage increased by 4 per cent), and in Europe by 4 per cent while increasing by 1 per cent in the Americas.
World refined copper balance for the first half of 2017 indicates a deficit of around 75,000 MT. This is mainly due to stagnant growth in world refined copper supply. In developing its global market balance, ICSG uses an apparent demand calculation for China that does not take into account changes in unreported stocks [State Reserve Bureau (SRB), producer, consumer, merchant/trader, bonded]. To facilitate global market analysis, however, an additional line item—Refined World Balance Adjusted for Chinese Bonded Stock Changes—is included in the table below that adjusts the world refined copper balance based on an average estimate of changes in unreported inventories provided by three consultants with expertise in China’s copper market. In the first half of 2017, the world refined copper balance adjusted for changes in Chinese bonded stocks indicates a deficit of around 5,000 MT.
Major global economic developments are continuously supporting the long term uptrend in the prices. China’s central bank have trimmed the amount of cash that some banks must hold as reserves for the first time since February 2016 in a bid to encourage more lending to struggling smaller firms and energize its lackluster private sector. Copper supply dynamics however, continue to provide a cushion after a notice by China Non Ferrous Metals Industry Association to its recycling branch that imports of scrap metal including Copper in wire, motors and bulk scrap metal form will be prohibited from the end of 2018. This boosted refined metal demand prospects in the world’s biggest consumer whose imports have plunged by 22 per cent in Jan-Jul’17 compared to 16 per cent increase in scrap imports. Big manufacturers have more confidence in Japan’s business conditions than they have had for a decade as a weak yen and robust global demand add momentum to the economic recovery. The upside for Copper is finding support in supply disruption concerns. Labour problem at Grasberg, world’s second biggest Copper mine in Indonesia, escalated to violence as former mine workers clashed with security forces, providing Copper another boost. Chinese factory activity continues to be in the expansion phase, dismissing tighter credit and slowing property market induced growth concerns. Overall I feel that the bullishness is likely to continue in the coming months amidst sustained support from demand expansion economic activities.