Copper was once again approaching the psychologically important level of $ 3 a pound on Wednesday due to falling inventories, soaring Chinese demand and the pandemic that has hit supply from South America, the United States. and Africa.
Copper for December delivery to New York City jumped 1.5% to $ 2.9965 per pound ($ 6,605 per tonne) in afternoon trading, bringing gains for 2020 to over 7% and at 50% from the covid-19 low in March.
A new report from Roskill suggests that the copper rally – which surprised many with its speed – still has a way to go.
Jonathan Barnes, associate consultant for copper at the London-based metals and minerals research firm, says that while the effects of covid-19 could reduce global metal consumption by 3% to 4% this year, the decline mining production and scrap metal flow was greater.
Panic buying signs
The effect is most visible in declining stocks around the world.
The total visible stocks in the world, which includes those of stock exchanges and bonded warehouses in China, fell 40% from March to the end of July to fall below 600,000 tonnes. Inventories in LME warehouses are at their lowest for 13 years.
China is responsible for more than half of the world’s copper consumption, and the country is sucking copper at record rates.
“China imports more refined metal from almost every country, which suggests structural change, not temporary change,” Barnes says.
“If you look for signs of panic buying, you can find proof of this in China – total Chinese stocks represent less than two weeks of consumption at current usage rates.”
In the rest of the world, where demand has fallen much more compared to China, stocks only represent one week of consumption.
The lack of available scrap – imports are down 50% in the first half of the year – after Beijing delayed new import rules, forced Chinese buyers to replace secondary sources with cathode, further reducing costs. visible stocks.
Roskill estimates a deficit of around 300,000 tonnes of imports of secondary materials – scrap metal, ingots and pellets – in China from January to July.
Barnes believes global flows of scrap might not normalize until the first quarter of next year, but would depend on new rules in China.
Barnes says Roskill’s sources were unable to confirm that China’s Bureau of State Reserves purchased strategic copper stocks, “but if they had been, they probably would have done more. early on, when the prices were much lower. “
Two-year replenishment cycle
Mine supply disruptions could be between 750,000 and 1 million tonnes in 2020, with eight of the ten largest miners recording lower production in the first half of the year.
China’s concentrate imports are declining year on year, while the supply of anodes and blisters to Central Africa’s copper belt is also facing roadblocks.
Barnes says China’s two-year replenishment cycle is increasing in magnitude as the country’s dominance in the copper market increases and he expects a full-year increase of 11.5% in imports of copper.
The country has a structural copper market deficit and replenishes whenever LME prices appear attractive. Plus, says Barnes, China can take a long-term view and use tomorrow what it doesn’t need today.
Roskill expects trade data to show another bumper August for imports, despite being a seasonal month for shipments.
Parallel to post-GFC
Barnes says the price of copper is likely to rise again towards the end of 2020, and the current environment has strong parallels with the rebound in copper prices after the global financial crisis.
Copper hit a low of $ 1.32 per pound in January 2009, then climbed to $ 3.55 in April of the following year to reach a historic high of $ 4.58 (over $ 10,000 per tonne) in February 2011.