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Saturday, 6 January 2018

Copper to Gain More Positive Traction in 2018

The year 2017 has been quite outstanding for copper and other base metals. In the year 2017, copper demand, especially from China, turned out to be better than expected. China’s housing market proved resilient, while global economic growth also strengthened over the year. There were more surprises on the supply side. Earlier this year, two of the biggest copper mines, Escondida in Chile and Grasberg in Indonesia both experienced prolonged disruptions, while other producers also suffered cutbacks due to declining ore grades and weather factors. Copper exceeded expectations in 2017 as demand proved stronger than expected while supply suffered some major disruptions. LME copper prices were up 26 per cent year to date, reaching $6906/MT on 19th December.

On the supply side, while labour disputes and weather factors continue to pose a risk to supply going forward, we do not expect supply cuts to be as severe as what we’ve seen earlier this year. Combined with capacity restarts in the Democratic Republic of Congo and Zambia and to a lesser extent additional output from new projects and expansions, we expect to see world mine production increase slightly in 2018. Better availability of copper concentrates should see refined production increase as well in 2018. That will however be limited to some extent by China’s recent ban on scrap imports. World mine production is estimated to have declined by around 2.5 per cent in the first nine months of 2017, with concentrate production declining by 1.7 per cent and solvent extraction-electro-winning declining by around 5 per cent. The decline in world mine production was mainly due to a 4 per cent 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, a decline in Argentina, Canada and Mongolia concentrates production of 52 per cent, 18 per cent and 18 per cent, respectively, mainly due to lower grades in planned mining sequencing and Argentina’s Alumbrera mine approaching end of life, a 18 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, a 11 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 34 per cent and 4 per cent increases in Kazakhstan 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. Brazil, Mexico, Myanmar, Spain and Sweden also contributed to world growth. On a regional basis, mine production is estimated to have declined in Africa by 1.5 per cent, in the Americas by 3.5 per cent, in Asia by 2 per cent and in Oceania by 2 per cent while increasing in Europe (including Russia) by 2.5 per cent. World refined production is estimated to have grown modestly by 0.5 per cent in the first nine months of 2017 with primary production (electrolytic and electro-winning) declining by 1.3 per cent and secondary production (from scrap) increasing by 9.5 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 6 per cent), followed by India (7.5 per cent) and some EU countries recovering from maintenances shutdowns in 2016. However, overall growth was offset by a 10 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 (-3.7 per cent) and the United States (-8.5 per cent). On a regional basis, refined output is estimated to have increased in Asia (4 per cent) and in Europe (4 per cent) while declining in Africa (2 per cent), in the Americas (9 per cent) and in Oceania (8.5 per cent).

World apparent refined usage is estimated to have increased modestly by around 0.5 per cent in the first nine months of 2017. Improved scrap supply is constraining world refined copper usage growth globally in 2017. Preliminary data indicates that world ex-China usage might have increased by about 1 per cent. However, China apparent usage (currently representing almost 50 per cent of world refined usage) remained essentially unchanged. Chinese apparent usage (excluding changes in unreported stocks) remained essentially unchanged as although refined copper production increased by 6 per cent, net imports of refined copper declined by 13 per cent. Among other major copper using countries, usage increased in India and Japan but declined in the United States, Germany and South Korea. The demand outlook for the red metal remains positive with expectations of a recovery in Chinese demand. This has been driven by President Trump’s plans to boost spending on infrastructure and construction, depreciation of the US dollar and the rising use of copper in electric vehicles and other electrical applications. The primary boost is expected to come from the recovery of the Chinese economy as the country continues its transitions towards a domestic demand driven economy.

The global copper market is eyeing at China’s ambitious USD 4 Trillion One Belt, One Road (OBOR) infrastructure development plan that aims at developing trade corridors across Asia, Europe, Africa and Middle East which would further drive demand. Other notable factors which are expected to drive the demand of the red metal include the rising production of electric cars, which use four times the amount of copper than a vehicle with a traditional combustion engine. According to International Copper Association, copper demand from electric vehicles is expected to be nine times higher by 2027 from the current level of 185,000 MT. Owing to the above expansion plan, the IMF has recently revised China’s GDP growth forecast for 2017 and 2018 to 6.7 per cent and 6.4 per cent respectively, reflecting the high levels of public investment in the country which augurs well for the steady and continued copper demand in the country.

Copper is currently in a supply deficit which is likely to increase over the next three years. As the global copper deficit intensifies and the price outlook remains strong, miners can be seen to focus on the expansion and development of new projects to meet increased demand. Production from brownfield expansions at Escondida in Chile, the restart of Glencore’s African copper operations, First Quantum Minerals’ new Cobre Panama mine and OZ Minerals’ construction of the Carrapateena copper mine in South Australia are expected to come online and increase output in the future. Prospects of a Chinese economic recovery, rising demand from electric vehicle manufacturers and US infrastructure plans announced following the election of President Trump are all driving copper demand. Meanwhile, labour disruptions, declining ore grades and a lack of new capacity are constricting supply, thereby resulting in a tightening market. Thus, we can see that irrespective of prospects of marginal increase in supply is on the cards, the supply deficit is expected expand further and leading to increased bullishness and it won’t be a surprise if we see new record high levels before the end of 2018.

Tuesday, 26 December 2017

NBHC’s Final Kharif Crop Estimates for 2017-18

The year 2017-18 was marked by good monsoon onset which had led to increased acreage in most of the kharif crops. The uncertainty of monsoon rains created doubts in the farming situation as it progressed. The plentiful of rains in the first two month of the monsoon season was followed by deficit precipitation in the final two months. The month wise quantum of rains in the country showed that it was 104 per cent of LPA in June, 102 per cent of LPA in July, 87 per cent of LPA in August, and 88 per cent of LPA in September. Apart from the quantity of the rains the distribution of it was also a point of concern. The region wise Seasonal rainfall over Northwest India, Central India, South Peninsula and Northeast (NE) India were recorded at 90 per cent, 94 per cent, 100 per cent and 96 per cent of respective LPAs. Around 59 per cent of India had received substantially less rainfall as compared to LPA. Around 235 out of 647 districts across the country faced the prospect of drought this year as the monsoon appears ended for a below-normal performance, with the season's deficit currently at 5 per cent of normal. Major states affected by this monsoon pattern were Rajasthan, Gujarat, Uttar Pradesh (West), Madhya Pradesh, Chhattisgarh, Telangana, Karnataka and Maharashtra. 

In our first estimate (First Kharif Crop Estimates for 2017-18 – 01st September 2017) we had broadly concluded that in the year 2017-18, the production of total cereal, pulses and oil seeds are expected to decline by 1.72 per cent, 9.51 per cent and 12.43 per cent over 2016-17. In the current assessment, the total cereals and pulses have marginally pushed in the positive region with an expected increase of 0.79 per cent and 11.91 per cent respectively while the scenario of oilseeds continues to remain in the negative territory and its gap has further widened to 19.84 per cent. Major reason for the significant change in the estimate has been the in-equitable distribution of monsoon, both in quantum and spread, the details of which is been given below. 

The crop wise analysis reveals that in the group of cereals, the rice crop was least affected by the irregularity in monsoon as it is grown mostly in well irrigated areas. For the year 2017-18, rice production is expected to improve marginally by 2.53 per cent over last year and decline marginally by 0.14 per cent over last estimate. It is to be noted that the Basmati rice production is expected to fall decline by about 25 – 28 per cent but this short fall is being compensated by the increase in the Non-Basmati rice, keeping the overall rice production on track. Maize is expected to decline marginally by 8.72 per cent over last year. The decline in the sowing area in Karnataka & Telangana was the main cause for the decline in production. In the minor cereals, Small Millets, Ragi and Bajra production is expected to improve by 11.48 per cent, 3.28 per cent and 4.21 per cent respectively while Jowar is expected to decline by 8.72 per cent over last year.

The increased focus on pulses production by the central government is clearly visible in the major pulses growing states. This year the favourable monsoon at the time of sowing and substantial increase in MSP has resulted in increased area for pulses. Accordingly, the production of Urad, Tur and Kulthi are expected to increase by 16.47 per cent, 9.87 per cent and 29.68 per cent respectively over last year. Moong is the only pulse showing a marginal decline of 4.88 per cent over last year.

The oilseeds sector is been the worst hit crop section in the current kharif season. Occurrence of heavy rains in the initial sowing stages and moisture stressed situation in the later stages has led to significant decline in production. The decline in soybean production is expected to the tune of 26.42 per cent to 10.47 million MT against last year’s production of 14.22 million MT. Groundnut production is expected to stage a decline of 9.88 per cent over last year. Other oilseeds such as Castor, Sunflower and Sesame are also expected to decline by 9.64 per cent, 12.84 per cent and 8.50 per cent respectively.

In the cash crop section, cotton is been seriously affected fluctuating weather conditions. In the initial phase, the sowing was affected by heavy rains and flooding of fields and in the later stages the crop was seriously infected by the cotton ball worm which has resulted in 12.45 per cent lower production figures for cotton over last year. 

Sugarcane is expected to increase marginally by 8.47 per cent on increased sowing and lastly Jute & Mesta is expected to decline marginally by 3.87 per cent amidst decking marketing prospects. 

The table below shows the details of the final estimate for the 2017-18 Kharif crop:


Friday, 13 October 2017

Copper Heats up the Base Metal Rally in the Global Market

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.

Monday, 4 September 2017

NBHC’s First Kharif Crop Estimates for 2017-18

With the Kharif season almost on the verge of completion we at NBHC are releasing our 1st Kharif Crop Estimate - 2017-18. As per our analysis and industry’s feedback on the sowing progress and the status of the current crop, the total Kharif Cereals production is likely to decline marginally by 1.72 per cent. For the current season the monsoon had arrived timely in good quantum but the distribution has not been uniform. The country has been affected by heavy rains in some states leading to massive flooding while the other states are dealing with significantly deficient and draught like situations. Based on the above conditions we fell that the total Kharif crop production scenario for the year 2017-18 would turn out to be as explained in table given below.   
Rice is expected to show a marginal Improvement in area by 2.84 per cent and a fall of 0.14 per cent in production over last year owing to wide spread rains in major paddy growing areas. Maize is the other cereal crop with significant decline in area as well as production. The area is expected to decline marginally by 1.17 per cent and the production is expected to decline by 7.94 per cent to 17.71 Million MT as major stretch of maize producing areas in major states are experiencing deficient rainfall situations. Maximum Decline is expected in Small Millets whose production is expected to fall by 12.54 per cent while its area is likely to shrink by 27.88%. Lack of remunerative income has led Jowar & Bajra farmers to shift their cropping pattern to other cash crops.   
In the pulses sector, the increased positive focus of the government was clearly visible over the last two years. In the pulses growing states of Madhya Pradesh, Karnataka, Andhra Pradesh and Telangana the production is expected to be marginally affected by the lack of rains in the growing areas. We expect the area under Tur, Moong, Urad and Kulthi to increase sharply by 11.41 per cent, 8.86 per cent, 17.10 per cent and 3.82 per cent respectively but the production is not expected to follow the same path owing to adverse weather situations developing in major growing areas. Overall, the total Kharif pulses production is likely to decline by 9.51 per cent over last year with maximum decline expected in Moong (17.15 per cent) flowed by Urad (13.11 per cent) and Tur (12.40 per cent).

The oil seed sector is likely to see a marginal decline in production by 12.43 per cent. Maximum Decline of 17.98 per cent in production is expected in case of soybean followed by 8.28 per cent production decline in Groundnut.
In this current monsoon season, the cash crop section is likely to show an overall positive growth in terms of production. In sugarcane, the production is likely to increase by 14.81 per cent while in cotton the production is likely to decline by 3.98 per cent.


Monday, 7 August 2017

Copper Market Shows Signs of Upsurge amidst Chinese Support

After months of stagnation the market has shown marginal signs of improvement amidst support from global supply squeeze, Chinese demand and weakening Dollar. Disruptions to copper shipments from Canada and Chile have undermined expectations for rising global copper supplies in the second half of the year, cutting the fees that smelters charge miners to process metal. Moreover, An estimated 5,000 workers at the giant Grasberg copper mine operated by Freeport-McMoRan Inc's Indonesian unit will extend their strike for a fourth month in a dispute over layoffs and employment terms. Growth in China's services sector slowed in July, a survey showed on recently, but data earlier showed that the manufacturing grew strongly, underpinning demand for metals. Expectations of stronger demand from Chinese stainless steel mills and concerns over supplies from top nickel ore exporter the Philippines have boosted the metal. The weaker dollar is another big tailwind for the industrial metal. The dollar index was down 2.9 percent in July, and copper futures for September were up 6.7 percent for the month. The U.S. dollar laboured at a 13-month low against a basket of currencies, making dollar-denominated commodities cheaper for holders of other currencies and potentially boosting demand. 

The in-depth analysis of the supply disruptions could be adhered to the continued strikes in major copper mines across the world. Unionized workers at mines in Peru, the world's second biggest copper producer, started a nationwide strike in Later half of July 2017 to protest the government's proposed labor reforms. The stoppage has likely curbed copper production at some of the country's largest mines, including BHP Billiton Plc's, Glencore Plc's Antamina, Freeport-McMoRan Inc's Cerro Verde, Southern Copper Corp's Cuajone and Toquepala. Zaldívar, an open-pit, heap-leach mine, produced 102,000 tonnes of copper in 2016. During the first quarter operator Antofagasta said production rose 7.3% to 26,600 tonnesWorkers at the Zaldívar copper mine in Chile signed a three-year wage deal with operator Antofagasta, the union confirmed. Chile is responsible for some 30% of global output. The world's largest copper mine Escondida was hit by a 43-day strike in February-March this year that crimped production by around 120,000 tonnes. The Chile’s Caserones mine, which has been behind schedule ever since it began producing in May 2014, had to halt operations for three weeks following a blackout caused by heavy snow and rain in May 2017. It’s been trying to get back on track since then.

On the supply side, World mine production is estimated to have declined by around 3.5 per cent in the first four months of 2017, with concentrate production declining by around 3 per cent and solvent extraction-electro-winning (SX-EW) declining by around 5 per cent. The decline in world mine production was mainly due to a 12 per cent decline in production in Chile, the world’s biggest copper mine producing country, negatively affected by the strike at Escondida mine and lower output from Codelco mines, a decline in Canada and Mongolia concentrates production of 19 per cent and 22 per cent, respectively, mainly due to lower grades in planned mining sequencing and a 14 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. However, overall decline was partially offset by a 13 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. On a regional basis, production rose by 4 per cent in Europe (including Russia) and 7 per cent in Oceania while declining by 6 per cent in the Americas, 1.5 per cent in Asia and 4 per cent in Africa. World refined production is estimated to have remained essentially unchanged in the first four months of 2017 with primary production (electrolytic and electro-winning) declining by 2 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 6.5 per cent), followed by Mexico (11 per cent) where expanded SX-EW capacity contributed to refined production growth. However, overall growth was partially offset by a 16 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 (in electrolytic production from concentrates) and in the United States (mainly in electro-winning output). On a regional basis, refined output is estimated to have increased in Asia (4 per cent), in Africa (3 per cent) and in Europe (including Russia) (2 per cent) while declining in the Americas (10 per cent) and in Oceania (11 per cent).

World apparent refined usage is estimated to have declined by around 3 per cent in the first four months of 2017. Preliminary data indicates that although world ex-China usage might have grown slightly by around 0.5 per cent, growth was more than offset by a 7 per cent decline in Chinese apparent demand. Chinese apparent demand (excluding changes in unreported stocks) declined by 7 per cent because although refined copper production increased by 6.5 per cent, net imports of refined copper declined by 36 per cent. Among other major copper using countries, usage increased in India, Japan and Taiwan but declined in the United States and Germany. On a regional basis, usage is estimated to have declined in all regions: in Africa by 1 per cent, in Asia by 3 per cent (when excluding China, Asia usage increased by 7 per cent), in the Americas by 1 per cent and in Europe by 6 per cent.

Since, copper supply is set to under-perform demand for much of the next half decade. As the global economy departs from several years of stagnation, so too does the outlook for copper pricing. The combination of stronger than expected Chinese demand, a clear lack of visible copper inventory build, an end to cost deflation, and the U.S.-centric reflation story after the Trump election victory has sparked positive price momentum through the latter stages of 2016 and the first half of 2017. Copper is not iron ore, and it is not nearly as easy to find and produce. The current copper price does not support growing supplies, and it appears that some producers have begun to put their collective shovels down. In reality, the world needs another mega-project before 2020, and we just don't have one coming. The major deposits are, for the most part, found. $3.00 per pound will easily bring on plenty of supply, but again, my belief is it will be too late. My guess is that we start to see the shortage become obvious near the end of the first half of 2017. Prices will overshoot and what we saw during the China boom won't be out of the question. Moreover, China's construction contracts have continued a high rate of growth despite their economic slump, as have car sales. A lot of China's recent copper interest may lie in the aluminum vs copper wiring battle. They have been using a lot of the aluminum wire, because it is a very abundant metal with stable pricing running a fraction of that for copper. Thus, I feel that the positivity in the prices is likely to continue of the later half the 2017.

Monday, 10 July 2017

Investor Keenly Awaits Improvement in Chinese Demand

The dwindling feature of copper trade continues to linger on amidst lack of concrete demand and unstable global economic developments. The base support for the improvement in the prices is coming from the supply side which is being curtailed by mine strikes and significant production cuts. The price movement has been range bound in the current period. After hitting historic highs in February 2011 at over $10,000 a metric ton, copper prices went on a prolonged slide, reaching seven-year lows around $4,330 a ton in January 2015 due to slowing Chinese demand growth and burgeoning supply as producers ramped up output in expectations of the demand growth witnessed from 2006-2011. However, Chinese demand growth slowed and along with it the prices have also slumped. As per the analysis of the supply disruptions, the copper prices is expected to move above $6,000 a ton in the second half of 2017, with peaks of close to $7,000 a ton before the end of the year, and above $8,000 a ton before the end of 2020.

The analysis of the supply side indicates that World mine production is estimated to have declined by around 3.5 per cent in the first quarter of 2017, with concentrate production declining by around 3 per cent and solvent extraction-electro-winning (SX-EW) declining by 6 per cent. The decline in world mine production was mainly due to a 14 per cent decline in production in Chile, the world’s biggest copper mine producing country, negatively affected by the strike at Escondida mine and lower output from Codelco mines, a decline in Canada and Mongolia concentrates production of 18 per cent and 23 per cent, respectively, mainly due to lower grades in planned mining sequencing and a 10 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. However overall decline was partially offset by a 17 per cent and 9 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. On a regional basis, production rose by 5 per cent in Europe (including Russia) and 9 per cent in Oceania while declining by 7 per cent in the Americas and 5 per cent in Africa, and remaining essentially unchanged in Asia. World refined production is estimated to have remained essentially unchanged in the first quarter of 2017 with primary production (electrolytic and electro-winning) declining by 2 per cent and secondary production (from scrap) increasing by 13 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 Mexico (12 per cent) where expanded SX-EW capacity contributed to refined production growth. However, overall growth was partially offset by an 18 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 (in electrolytic production from concentrates) and in the United States (mainly in electro-winning output). On a regional basis, refined output is estimated to have increased in Asia (5 per cent), in Africa (2 per cent) and in Europe (including Russia) (2 per cent) while declining in the Americas (12 per cent) and in Oceania (5 per cent).

World apparent refined usage is estimated to have declined by around 3 per cent in the first quarter of 2017. Preliminary data indicates that although world ex-China usage might have grown by around 1 per cent, growth was more than offset by a 6.5 per cent decline in Chinese apparent demand. Chinese apparent demand (excluding changes in unreported stocks) declined by 6.5 per cent because although refined copper production increased by 7 per cent, net imports of refined copper declined by 35 per cent. Among other major copper using countries, usage increased in India, Japan and Taiwan but declined in the United States and Germany. On a regional basis, usage is estimated to have declined in all regions: in Africa by 1 per cent, in Asia by 3 per cent (when excluding China, Asia usage increased by 7 per cent), in the Americas by 1 per cent and in Europe by 5 per cent. 

Chinese demand has improved during June, and, consequently, prices increased this month. Automotive sales within China have risen from April to May, which has provided a short-term lift in copper prices. However, if analyzing automotive sales compared to last year’s data, sales have only held steady; therefore, a significant growth spike in the automotive sector or increased demand for copper and the subsequent lift in copper prices is not sustaining in the current period.

Major development in the global market supporting the copper price for the short term are: the increase in warrant copper inventories in LME warehouses - those not earmarked for shipment and available to investors - has soared by 47 per cent to 213,900 tonnes since June 28 after inflows into mostly Asian depots and significant decline in copper prices was offset by news that Chilean miner Antofagasta was facing potential strikes from workers and supervisors at two of its mines as contract talks continue. The combined annual production at both Chilean mines is 160,000 tonnes of copper. The currency market too has supported the copper demand as a softer dollar has helped underpin prices as it makes dollar-denominated products cheaper for non-US buyers, potentially boosting demand. Increased imports by China -- responsible for about 45 per cent of the metal's global consumption – is also another factor in the price surge. Official customs data showed the country's refined copper imports in May firmed 30% to 390,000 tonnes when compared with the previous month. Especially in the off-season for copper, implied markets had overestimated the slowdown in China's economic growth and sluggish domestic demand and the pessimism in the investment sentiment is likely to go off soon amidst boost in the demand in the coming months. 

In spite of the short term indecisiveness, the future of the copper is bullish for the long term investors. Copper consumption has steadily grown along with the global economy, and it is expected to continue to grow as greater numbers of people have access to electricity, plumbing and modern appliances. The World Bank, for example, has launched lending for rural electrification in the Sub-Saharan Sahel region of Africa with the goal of providing power to an additional 60 million people who are without electricity today. This venture would require untold amounts of copper for implementation, yet this expansion is still dwarfed by the current scale and rate of rural electrification in India and China. Another factor in the increasing demand for copper is that many industrialized nations also have aging power grids. Improvements and capacity expansion of grids in the US, Europe, Japan and Australia is likely to continue consuming more and more of copper.

Wednesday, 21 June 2017

Short Term Optimism Fading Away Amidst Subdued Demand

Copper has rallied 40 per cent since January 2016, erasing all losses since May 2015. Investors have become increasingly optimistic about the metal’s prospects with speculative positioning in copper futures recently hitting an all-time high, more than 2.5 times its historic average. While the price of the metal remains 40 per cent below the peak reached in 2011, the supply disruption is keeping further fall of prices under check. The major driving factors maintaining the bullish phase in the copper market has been the several mine outages. Workers at the world’s largest copper mine, Escondida in Chile, have been on strike for three weeks and negotiations between unions, the mine operator (BHP Billiton) and government mediators have yet to be scheduled. The world second largest copper mine, Grasberg, operated by Freeport-McMoRan Inc., has also faced outages. The Indonesian government has not renewed Freeport’s copper ore export license that expired in February 2017. The Grasberg mine is also facing difficulty selling domestically, with PT Smelting (its sole domestic offtaker of copper concentrate) expected to be on strike until March. The Las Bambas mine in Peru has had its roads blocked by protestors who want the government to invest more in local infrastructure rather than just mine infrastructure. The three mines account for close to 12 per cent of global mine capacity. Outages in 2016 were usually low, accounting for less than 1 per cent of expected supply, but that could rise substantially in 2017 if the issues at Escondida, Grasberg and Las Bambas are not resolved soon. 

World mine production is estimated to have declined by around 2 per cent in the first two months of 2017, with concentrate production declining by around 1 per cent and solvent extraction-electro-winning (SX-EW) declining by 5 per cent. The major decline in the production can be associated to a 10 per cent decline in Chilean mine production negatively affected by the strike at Escondida mine and lower output from Codelco mines. The decline in Canada and Mongolia concentrates production are 19 per cent and 23 per cent, respectively, mainly due to lower grades in planned mining sequencing. The 10 per cent decline in Indonesian concentrate production was reported as output was constrained by a temporary ban on concentrate exports that started in January and ended in April. However, the overall decline was partially offset by an 18 per cent and 15 per cent rise in Mexican (concentrate and SX-EW) and Peruvian (concentrate) output, respectively, both countries benefitting from new and expanded capacity that was not yet fully available in the same period of last year. On a regional basis, production rose by 5 per cent in Europe (including Russia) and 10 per cent in Oceania while declining by 4 per cent in the Americas and 6 per cent in Africa, and remaining essentially unchanged in Asia. 

World refined production is estimated to have remained essentially unchanged in the first two months of 2017 with primary production (electrolytic and electro-winning) declining by 3 per cent and secondary production (from scrap) increasing by 11 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 4 per cent) followed by Mexico (14 per cent) where expanded SX-EW capacity contributed to refined production growth. However, overall growth was partially offset by a 16 per cent decline in Chile, the second world leading 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 (in electrolytic production from concentrates) and in the United States (mainly in electro-winning output). On a regional basis, refined output is estimated to have increased in Asia (3 per cent), in Africa (2 per cent) and in Europe (including Russia) (1.5 per cent) while declining in the Americas (11 per cent) and in Oceania (5 per cent).

On the demand side, development in China remains in the forefront. The country now accounts for 49 per cent of the annual global copper consumption. In 2017, the demand should increase 4.6 per cent and reach 11.2 million MT. Other sales regions like Europe (EU-28: plus 0.2 per cent to 3.1 million MT) and the USA (plus 1.7 per cent to 1.8 million MT) admittedly cannot keep up, but they definitely are showing positive performance. The Chinese copper producer Jiangxi Copper estimates China’s copper demand in March 2017 at 822,500 MT, an increase of 22 per cent compared to February 2017 (676,500 MT). Stimuli came from the construction industry as well as heating and air conditioning. This is also reflected by the quarterly figures from the sectors. Investment in real estate rose by 9 per cent compared to the previous year to a converted value of US$ 289 billion. In April, the domestic sales of air conditioner units are expected to have risen to 7.85 million MT., an increase of 69.8 per cent over the previous year, and exports are expected to have risen by 5.4 per cent to 6.78 million MT. Furthermore, there is talk of a reduction in available cathode inventories. Cathode exports from China also decreased from 44,000 MT for March to 19,000 MT in April. There’s also the more fundamental argument that the use of imported copper for financing purposes is no longer playing a large role and that the reduced import volumes represent a return to normal conditions.

In the recent times the refined production is growing by 1.7 per cent and refined usage is only growing by 1 per cent. A 2 per cent increase in refined copper use would see the market remain in a deficit. Global manufacturing PMIs are at a 34-month high and could rise to a 6-year high this year. Given the growth in manufacturing and infrastructure spending, we believe that demand is likely to surpass the supply in the coming months. The development in China on the demand side is likely to keep the underlying strength in the market intact. Ahead of the 19th National Congress of the Communist Party of China to be held in September 2017, Chinese authorities would be seeking political stability which suggests that economic stimulus is likely to remain in play, which would favour continued spending on infrastructure and strong demand from the manufacturing sector. 

We should remain positive of the developments in China because the shift away from manufacturing and towards consumption is not necessarily negative for copper. For example, the copper intensity of cars will rise with the growth of electric vehicles. Regular cars contain approximately 20 Kg of copper. Electric vehicles consume about 80 Kg of copper. While electric vehicles account for less than 1 per cent of global sales, consensus estimates that it will rise to 4 per cent by 2025, proving an additional source of demand. Thus, we can say that all is not gloomy for the Copper Industry as it seems as on date, things have been improving as depicted by the glimpse of the expected growth in the Automobile Sector.

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