Copper continues to defy the demand-draining impact of COVID and is instead reacting to China’s continuing buying surge for both processed metal and concentrates.
The price of the key industrial metal is up 60% from a low in March as the Chinese economy and demand recovers from coronavirus shock in the first half of 2020.
Despite the impact on demand in China early on, the country has so far imported 3.55 million tonnes of refined copper in the first nine months of this year. That’s already more than in 2019 and amounts to an extra million tonnes of metal compared to a year ago.
That saw copper leap above $US7,000 a tonne on the London Metal Exchange on Wednesday for the first time since June 2018, helped by expectations of healthy demand in China, a strengthening yuan and hopes for a US stimulus deal.
The chances of the latter happening before the November 3 poll are shrinking, so its the Chinese buying wave that seems to be pushing prices higher.
On Wednesday, in New York, Comex December copper rose 1.6% to $US3.1985 a pound, to finish at its highest since June 2018.
A report from the International Copper Study Group (ICSG) says the refined copper market is on course to register a supply-demand shortfall this year because of China’s continuing buying splurge.
The ICSG estimates the deficit at just 52,000 tonnes (tiny in a 24-million tonnes a year global market) but that compares to the forecast 280,000 tonnes a year surplus a year ago.
And that was before COVID-19, which has since devastated demand with the ICSG estimating slumps of 8% in the European Union, 6% in the United States and “significant reductions in India, Japan and other ASEAN countries”.
But while COVID has cut demand, it has also slashed production, especially in South America.
The ICSG estimated that the impact of COVID on demand and production will see global copper mine production fall by 1.5% this year.
That will be the second consecutive year of lower output after a tiny 0.2% decline in 2019.
At its last meeting a year ago the Group forecast a 2% rise in mined copper production in 2020 but has now knocked 700,000 tonnes from its forecast, producing the estimated deficit. The culprit is the impact of COVID infections in producer countries like Peru and Chile.
Reuters also said the ICSG also cut 850,000 tonnes of refined metal from its last forecast.
On top of this, global secondary production, which uses scrap as a feed has been hard hit, down 5.5% this year as scrap collection, processing and logistics networks have frozen under national lockdowns and struggle to re-establish themselves. Much of this fall has happened in China.
China has also added to the problems with conflicting rules on scrap imports.
Chinese copper consumption through is not seen rising at the rate suggested by the huge rise in the volume of imports (copper concentrates imports have risen sharply as well).
Reuters reports that China imports around 80% of its annual copper consumption – 10.9 million tonnes of 13.5 million tonnes. Those imports represent more than one third of the global copper market
Western analysts think its all stockpile buying ahead of a new five year plan that will see more spending on green and renewable products which will need copper.
There’s a meeting of the China’s leaders next week to discuss its next five-year economic and social development plan.
Analysts say there’s a rising chance China will start winding back its surge in copper purchasing which will (when realised by the market) knock the props under prices.
This boomlet for copper has helped one Australian miner – OZ Minerals is a copper/gold play based in South Australia and its share price is up 47% (till Wednesday) so far in 2020. It closed at $15.17 on Wednesday.
Newcrest which is a gold/copper producer has seen its share price fall 7% so far this year to $31.78. That’s despite the surge in copper prices and the boom in gold with new US and $A dollar records being set.
BHP is the biggest Australian copper producer (thanks to the massive Escondida mine in northern Chile as well as Spence in Peru and Olympic Dam in South Australia), but its share price is driven more by iron ore prices (strong at the moment and higher this year) and oil (weak this year).
Copper doesn’t seem to have had an impact on the BHP share price which is down 7.2% so far this year. It ended at $36.11 on Wednesday.
Rio Tinto’s share price is down so far this year by around 5%, despite the solid rise in iron ore prices (its main driver) and the solid surge in copper.