Bulletins
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After poking above $5000 early in May, prices headed lower during the balance of the month, getting to a three-month low of $4540 at one point. A stronger dolar and concern about Chinese end-user demand continue to weigh on valuations. In the latter regard, despite the strong run of refined copper imports into China. The numbers show that China imported 1.88 mln tons of copper during Jan-April, up 23.1% from a year ago. It is inconceivable that domestic demand has grown anywhere near that amount and neither is it likely that imports are making up for lower domestic output since the latter is actually up 11% year-on-year.
On the supply side, Chilean copper output fellin April (off some 8.2% y-o-y), but this was more on account of the heavy rains, so it is possible that production could recover going into the next few months. At the height of the heaviest rains, both Anglo and Codelco temporarily suspended a combined 880,000 tons of output, but both have since resumed production. Other than that, there isn’t any major cut backs and the refined market remains relatively comfortable, borne out by restrained premiums and the latest ICSG report showing the copper market in a 76,000 ton surplus.
London copper climbed away from near its lowest level in a fortnight on Wednesday, as the dollar stayed weak and after China reported strong copper imports in May.
China's copper imports jumped 19.4 percent from the same month a year ago to 430,000 tonnes last month, customs data showed on Wednesday. "The normal seasonal slowdown in Chinese commodity imports didn't materialise in May, with most commodities recording strong growth," said analyst Daniel Hynes of ANZ in Sydney.
Overall, trade data was mixed, as China's exports fell more than expected given stubbornly weak global demand, but imports beat forecasts, pointing to improving domestic demand and adding to hopes that the world's second-largest economy may be slowly stabilising. China's central bank also slashed its forecast for exports on Wednesday, predicting a second straight annual fall in shipments, but said the economy will still grow 6.8 percent this year.
Three-month copper on the London Metal Exchange had climbed 0.9 percent to $4,605 a tonne by 1317 GMT, paring 2.6-percent losses from the previous session, when prices plumbed their weakest in a fortnight at $4,552 and teetered near the lowest since February.
Chinese imports of copper concentrate jumped by 13 percent on the previous month and were up 45 percent from a year ago. "Overall, we expect China's copper imports to ease further in June as rising treatment and refining charges (TC/RCs) and domestic smelting production will increase domestic supply and reduce import demand," Argonaut Securities said in a note. A surge of copper into Asian warehouses has revived concerns that China is shipping out its surplus metal, ramping downward pressure on international prices.
At the same time, however, a softer dollar was limiting losses on hopes that the U.S. Federal Reserve will not raise interest rates in the coming months after last week's disappointingly weak U.S. jobs report. The U.S. dollar hit its cheapest in more than four weeks against a basket of currencies on Wednesday, boosting the buying power of commodities users paying with other currencies.
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After hitting a one-month low of $4633 in mid-April, copper recovered nicely, crossing over $5,000 late in the month and closing just above that mark by month end. Prices have been helped by a number of factors, including a weaker dollar, growing fund interest in commodities and a slightly more constructive tone in the fundamentals.
Reflecting the latter, China’s imports of copper ores and concs rose by a whopping 34% from a year ago, while March refined imports came in at a record 570,000 tons, up about 30% from February. Q1 imports are now up 39% y-o-y and talk is that April and May intake will be high as well. Again, not much of this influx seems to be “in synch” with what we are hearing with regard to the physical business in China. In this regard, CRU sees real copper demand rising by only 0.6% this year amid a market that is forecast to remain in surplus (by 150,000 tons according to GFMS). Granted, spot business in China has become better recently, but it certainly does not warrant a 30% y-over-y increase in imports.
High stocks in Shanghai (now at a one-year high) also do not justify the strong rebound. The disconnect between soaring imports and steady, but not spectacular demand, tells us that much of the copper being brought in is either being arbed, financed or stored. On the supply side, it seems that the bulk of producers remain profitable, although those on the high side of the cost curve (with cash costs between $4,000-$5,000) are barely eking out a margin, this according to CRU. That should change if prices pull away, but it would also mean that additional cutbacks would also not take place.
Copper fell for a second session on Wednesday as weak global manufacturing activity unsettled markets only recently soothed by signs of a possible pickup in China's economy. Global manufacturing growth almost stalled last month as rising prices halted an upturn in new orders, a survey showed.
In China, factory activity shrank for a 14th consecutive month in April, according to a private survey, presenting a mixed picture of the health of the world's No.2 economy and top copper consumer. "Disappointing manufacturing data in China raised some doubts in investors' minds after the strong rally in recent weeks," ANZ said in a note.
Three-month copper on the London Metal Exchange had slipped 0.5 percent to $4,896 a tonne, adding to 2.6-percent losses from the previous session. Prices on Friday struck their highest in a week at $5,073.50.
As of now, a stronger dollar is weighing on demand for commodities priced in the greenback. The dollar came off 15-month lows against a basket of currencies reached on Tuesday to hit its highest in three sessions, eroding the purchasing power of buyers paying with other currencies.
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Copper bounced in March, with much of the move tracking the dollar, as the fundamentals of the complex remain dreary. Chinese demand is sluggish, manifesting itself in the surge we are seeing in Shanghai stocks, which recently got to 400,000 tons, more than double year-end 2015 levels. And although LME stocks have fallen by 90,000 tons so far in 2016 (the lowest since Feb. 2015), investors suspect the drawdown is feeding mostly into arb and/or finance-related trading. The latter may also explain the rise in Chinese imports, with Jan/Feb intake totaling 652,000 tons, 28% higher y-o-y and well in excess of any demand bounce that could justify such an increase.
Elsewhere, the ICSG sees the global refined market remaining "essentially balanced" in 2016/2017 compared with its previous forecast of a 175,000-ton surplus for this year. "Downward revisions have been made for both production and usage in view of a weaker economic outlook, project delays and price-related production cuts" the ICSG said. World mine production is seen rising 1.5% this year by 2.5% in 2017, well below the 4%-5% increase the Group was calling for just six month ago. Refined copper production is expected to move up by just 0.5% this year compared with 1.6% in 2015. However, the ICSG data may have been compiled when prices were much lower and the mine numbers could change if we get to $5,000 or above, as at that level, the vast majority of producers would be profitable.
Copper clung to small overnight gains today supported by a weaker dollar, but it remained within striking distance of a one-month low on concerns over demand from top consumer China.
Copper rallied in the beginning of the year along with other commodities, but has fallen nearly 7 percent since hitting a four-month peak in mid-March. Analysts say the price rally was overdone and that physical demand has not risen.
Three-month copper on the London Metal Exchange was little changed at $4,770 a tonne by 1432 GMT. The metal hit a one-month low of $4,751 on Tuesday before closing the session up 0.3 percent.
"We are forecasting the price to go down mainly because the demand growth is weaker this year," said Chunlan Li of consultancy CRU in Beijing. "Demand has picked up month-on-month, but is still low as compared with the same period last year," she said. Li expects Chinese copper demand to grow 0.6 percent this year, lower than the 3.8-percent growth seen last year.
Copper prices are expected to slide below January's 6-1/2 year lows, hit by a lack of production cutbacks and weak demand in the world's biggest metals consumer China, said GFMS analysts at Thomson Reuters. Data on Wednesday showed that activity in China's service sector strengthened in March, but employment fell for the first time in over 2.5 years, sending mixed signals on the health of a sector, which Beijing is counting on to offset prolonged weakness in manufacturing. For now, copper was supported by a softer dollar that makes the greenback-denominated commodities cheaper for holders of other currencies.
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Copper was steady last month, trading between $4430-$4771. However, prices really took off this past week, taking out the $5000 mark mainly on account of severe landslides that have caused several mines in Peru to cancel or delay concentrate shipments. In addition, prices are rallying on expectations of a possible stimulus package being rolled out by the Chinese authorities and increase on oil prices is dragging all base metals. Outside of Peru, there are other signs of copper supply tightening. As an example, Chile said that its January output was off 14% vs last year-- the first noticeable decline in a long time. In addition there is talk that the nine large Chinese copper smelters that have previously agreed to 350,000 tons of cuts could expand the amount.
Reuters also cites CRU as saying that it is now looking for a loss of 610,000 tons of contained-copper this year and we suspect as well that the 4%-5% increase projected for global mine supply growth (by the likes of the ICSG) will be ratcheted down as well. Still, producers will have second thoughts about making cuts now that prices are racing higher.
London copper dropped on Tuesday, falling away from recent four-month highs after weak Chinese trade data damaged the outlook for metals and revived fears that a downturn in China's economy could derail global growth.
China's February trade performance was much worse than economists had expected, with exports tumbling the most in over six years and imports also sliding, days after top leaders reassured investors that the outlook for the world's second-largest economy remains solid.
Three-month copper on the London Metal Exchange had slipped 1.0 percent to $4,945 a tonne by 0732 GMT, adding to small losses from the previous session. Prices have dropped from four-month highs struck last week at $5,059 a tonne.
China's imports of copper fell 4.5 percent from month ago to 420,000 tonnes in February, customs data showed. "Imports are a little bit down, but is it a cause for concern? I don't really think so, given February with Lunar new year and a short month," said analyst Daniel Morgan at UBS in Sydney.
Metals had earlier found support after global oil markets jumped more than 5 percent on Monday, as producers sought to shore up supply, fanning hopes commodities prices may have bottomed out.
Prospects of dollar strength are also looming over metals. After a long wait for inflation to accelerate, U.S. Federal Reserve officials face a complex and possibly divisive debate over whether recent evidence of rising prices is strong enough to move ahead with planned rate hikes.
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Copper hit a fresh seven-year low of $4318 in Jan before recovering over the 2nd half. Meanwhile, various producers have been tallying up production totals for 2015 and giving guidance for 2016 and beyond. Judging the projections, a majority seem oblivious to the depressed pricing environment. For starters, Chile said it produced 5.79 mln tons of copper last year, a .2% increase from 2014. Output is expected to be flat this year before rising yet again in 2017, this time by about 3.1%. Peruvian output is expected to be up by a more dramatic 65% this year, as 10,000 tons of Las Bambas copper concs shipped out last month, the first installment of an expected 450,000 ton roll-out.
Neither of these trends is all that encouraging given that Chinese demand is off the boil, at least judging from the sluggish macro data and from what our physical customers are telling us. Surprisingly, this is not evident in the Chinese import data, which instead shows that refined copper intake hitting a record 3.68 mln tons last year, up 2.5% from 2014 levels. (Copper conc imports were also up 12.3% y-on-y).
According to INTL’s last report it suspects this metal is coming in more so on account of arb trading, stockpiling schemes or somewhat modified financing programs, as opposed to accommodating local demand. (Lower expected Chinese grid spending is theoretically another negative for this year, but they would not read too much into this, as even a lower dollar grid spend will buy more copper this year than it did a year ago). In terms of it outlook, they see a relatively steady $4450-$4750 trading range in Feb, as further dollar weakness will offer an element of support, as should the current Freeport-Indonesia dispute. Furthermore, an absence of Chinese traders on account of the NY break should prevent major moves in either direction.
London copper edged down on Monday after the dollar firmed following a mixed U.S. jobs report, with the start of a week-long holiday in China draining liquidity from the market.
U.S. employment gains slowed more than expected in January as the boost to hiring from unseasonably mild weather faded, but rising wages and an unemployment rate at an eight-year low suggested the labour market recovery remains firm.
Three-month copper on the London Metal Exchange had slipped 0.5 percent to $4,607 a tonne by 1341 GMT, extending 1.2-percent losses from the previous session. Prices on Thursday hit a one-month high at $4,720 a tonne.
The Shanghai Futures Exchange is closed for the Lunar New Year holiday and will reopen Monday Feb. 15.
Global markets have been in turmoil since the start of the year, with stocks and commodities prices reeling, eroding inflation and making central banks increasingly dovish - a trend that could continue with more weak economic data.
China's January exports may have fallen for a seventh month with factories still battling falling prices, but an expected jump in bank lending may underscore the government's bid to put a floor under the slowing economy. (Full Story)
Hedge funds and money managers cut a bearish position in copper to the lowest since early November, in the week to Feb. 2, U.S. Commodity Futures Trading Commission data showed on Friday.
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Copper ended down 25% lower in 2015 on account of declining Chinese demand, exacerbated by few signs of producer cutbacks. Granted, Chinese refined imports held up quite well in 2015 and will likely finish the year essentially unchanged, but the strong inflows do not tally up with what macro indicators are telling us. All this suggests that imported copper may either be getting stored, arbitraged, or perhaps surreptitiously financed in dark corners of China’s shadow banking system.
In addition, the fact that nine Chinese smelters said last month that they will cut refined output by as much as 550,000 tons in Q1 tells us that demand may not be as great as the import figures suggest. Moreover, we don’t know whether the cuts will be reinstated if prices recover. Also, with treatment charges still attractive, other nonparticipating smelters could pick up the slack. More troubling, is that we are not seeing any cuts from Chile, responsible for 30% of global copper supply.
Here, refined output is expected to hold steady this year and the latest November numbers even show a y-o-y gain of almost 2%. Out of Peru, the government expects output to rise 65.5% in 2016 to about 2.5 million tons after Las Bambas starts producing next month. Meanwhile, Cochilco sees global mine production rising by 3.2% in 2015, while the ICSG is more upbeat, seeing a 4.2% gain, outpacing 2016 consumption growth, which it expects to remain essentially flat.
Copper prices tumbled in this session, hitting their lowest in nearly seven years, as plunging China equities highlighted the country's economic problems and reinforced concern about demand for industrial metals. Benchmark copper on the London Metal Exchange was down 2.9 percent at $4,486 a tonne at 1505 GMT. The metal, used in power and construction, had earlier touched $4,430, its lowest since May 2009.
China's stock markets were suspended for the day less than half an hour after opening as a new circuit-breaking mechanism was tripped for a second time this week. Shanghai stocks slid 7.3 percent to trigger the halt, a repeat of Monday's losses. "Chinese equities, some of the economic data this week have spooked the market. China is the dominant consumer of pretty much every commodity," said Investec analyst Marc Elliot.
Data published this week showed China's manufacturing sector shrank for the 10th month running in December, while activity in services fell to a 17-month low.
China's central bank allowed the yuan to fall to its lowest level against the dollar since March 2011, a sign analysts said was an acknowledgement of weak growth.
"The Chinese stock market still has much more room to fall considering that for all the weakness we saw in the Chinese economy last year, the general Shanghai stock market was still up 9 percent last year," INTL FCStone's Edward Meir said in a note.
Some support for copper could come from China's state stockpiling agency, the State Reserve Bureau, which is expected to start buying domestic copper supply this month after local smelters urged it to intervene, industry sources said.
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Copper lost substantial ground in November, off some $600/ton and sinking to a 6-year low in the process, although there has been a degree of stabilization setting over the last few days on account of dollar weakness.
The complex was weighed down earlier in the month by fund selling, a stronger dollar, weaker Chinese demand, a steep Chilean cut in refined premiums (to $98 from $133) and skepticism about whether announced cuts so far are enough to tighten the supply/demand balance going into 2016. Since then, there have been additional cuts announced, including by nine Chinese producers last week wherein 350,000 tons of output is supposed to come off in 2016. In a 20 mln ton market, this is not significant and neither are we certain that these cuts will not reappear if prices rebound.
More significant, is what Chile will do – or not do. At CESCO-Asia, a Codelco executive said his company was not contemplating cuts, but was instead focused on lowering costs. Since then, the official line has changed, with the company now saying that cuts are under consideration should prices continue to deteriorate, which it suspects they will. In the meantime, latest Chilean monthly production numbers for October has output at 500,000 tons, up 1% from a year ago, so we have yet to see reductions start. More broadly, the ICSG sees overall mine output growing by 1.2% this year and by a more substantial 4.2% next year. This is outpacing 2016 consumption, which it thinks will remain essentially flat going into 2016.
Copper prices slipped on Monday as worries about weak demand growth in top consumer China and expectations of surplus metal were reinforced by a strong dollar.
Benchmark copper on the London Metal Exchange was untraded in official rings but bid 0.4 percent lower at $4,595 a tonne. A higher dollar makes commodities more expensive for non-U.S. firms, a relationship used by funds to trade copper.
Hedge funds and money managers added to their net short position in COMEX copper contracts in the shortened holiday week to Dec. 1, U.S. Commodity Futures Trading Commission data showed on Friday. The managed net short position is the biggest net short since April 2013.
China accounts for nearly half of global copper consumption estimated at about 23 million tonnes this year. Analysts estimate demand growth for copper in China has slowed this year to around 2.5 percent from more than 7 percent last year.
"The market is focused on the demand side. We will have better clues of what is going on with Chinese data later this week," SP Angel analyst Sergey Raevskiy said. "Producers need to cut more to try to balance the market, but that isn't happening." China's trade data is due on Tuesday and investment and industrial production numbers for November are due on Saturday.
U.S. employment increased at a healthy pace in November, in another sign of the economy's resilience, and will most likely be followed by the first Federal Reserve interest rate rise in a decade later this month.
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Copper had a quiet month, with its range even more compressed than in September. Prices fluctuated between $5000-$5350 in October. The sideways drift was attributable to two variables, the first being the strength in the dollar caused in large part on renewed conviction (emerging last week) that the Fed will indeed raise rates before year-end. The second has to do with a stream of weak macro numbers coming out of China.
Although LME stocks have been dropping (off by some 50,000 tons in October), an open arb has prompted refined copper imports to rise sharply in September (up 22% y-on-y), replenishing Shanghai inventories to the tune of 30,000 tons in October.
Moving to the supply side, there is little evidence that Chilean production is retracing meaningfully in light of weaker Chinese demand; Cochilco reported last week that output is forecast to come in at 5.68 million tons in 2015, down only 1.2% y-on-y before it resumes its uptrend in 2016. For its part, the ICSG sees the refined market as being in an 8,000-ton surplus (as of July) and in a 10,000 ton excess year-to-date.
Copper prices rose 1 percent on Wednesday, supported by bets that demand in top consumer China is set to improve thanks to government stimulus, and by news that mining giant Glencore will deepen cuts in its output of the metal.
Glencore said it expects to cut 455,000 tonnes of copper output by the end of 2017. In September, it suspended copper output at two mines in Africa, removing 400,000 tonnes of cathode from the market.
In China, equities posted their biggest daily gain in seven weeks, after President Xi Jinping made economy-friendly comments and the government unveiled proposals for a five-year financial market reform plan.
"We're already seeing tentative signs that things will pick up (in China) but the market is on hold waiting for data next week on China's trade, which will give an indication on whether the strong (September) figures will be sustained," said Caroline Baine, senior commodities economist at Capital Economics.
Three-month copper on the London Metal Exchange climbed 1.1 percent to $5,213 a tonne by 1233 GMT. The price hit the weakest in a month at $5,086.50 on Monday, but has held above a six-year low of $4,855 reached in late August.
Elsewhere, the dollar inched towards 2-1/2-month highs against a basket of currencies, capping gains in dollar-priced metals by making them costlier for non-U.S. investors. The dollar is being buoyed by returning expectations of a rise in U.S. interest rates and better growth globally, with markets awaiting Friday's U.S. non-farm payrolls report for more clues on the outlook.
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Copper made fresh lows in August, breaking the psychologically important $5,000 mark and getting to a low of $4855 at one point. However, the extent of the decline was not as steep as what we saw in July, although this is of little consolation to producers. Basically, China-related concerns are weighing on prices, as in addition to the exogenous shocks of imploding equity markets and a devalued currency, there are serious concerns about Chinese end-user demand. Estimates we are seeing on the Chinese rate of growth in copper demand are in the low single digits and some are even speculating about negative numbers when 2015 is finally put to bed.
Whatever the case, producers are starting to respond. In this regard, Freeport McMoran said last month that it would shut one of its mines in Arizona and reduce output at two others as well,while also slashing capital spending. The DRC warned about cost-cutting by mining companies, while Poland's KGHM said it would postpone or suspend some of its projects. For its part, Codelco said it is reworking a plan to expand its key Andina mine due to falling prices and protests about the project’s impact on the environment, but surprisingly, Chilean production has remained virtually on track for much of the year. In this regard, although July output was off 2.5% vs. a year ago (mainly due to strikes), output for the first seven months of the year is still up some 1.7% from a year earlier.
In other news, the ICSG sees copper in a 4,000-ton surplus (through May) compared to a 537,000-ton deficit in 2014. For its part, Reuters-GFMS sees the copper market to be in a 477,000 surplus this year, a staggering number -- and quite a difference.
Today copper scaled a seven-week high on expectations of tighter supplies, though the rally could be short-lived without improvements in demand from top consumer China or more substantial production cuts. Benchmark copper on the London Metal Exchange traded at $5,351 a tonne in official rings, from $5,345 at the close on Tuesday. The metal used in power and construction had risen earlier to $5,434.50.
A gain of about 5 percent so far this week was triggered by London-listed mining giant Glencore's plan to suspend 400,000 tonnes of copper output from Africa. "It's mostly short-covering; some of these guys did not expect such a move to cut copper output," said Carsten Menke, commodities research analyst at Julius Baer. "It's price supportive, but the cut does not mean a market deficit. The recovery will probably run out of steam."
Price pressure is still being exerted by weak economic and demand growth in China, which accounts for about half of global consumption, and by the U.S. dollar. A stronger dollar makes commodities more expensive for non U.S. firms.
The U.S. Federal Reserve is expected to keep interest rates steady at its Sept. 16-17 meeting, but many observers think it will tighten policy this year, which could reinforce dollar strength.
Over the next couple of weeks the market will discover how China's economy fared in August, with the release of a data including industrial production and investment figures. "We believe the multi-year slowdown in China continues and, given the lack of an immediate catalyst that could bring the entrenched bear market to an end for many raw materials, commodities including copper and iron ore should keep falling next year," Bank of America Merrill Lynch said in a note.
The bank said there is a risk that copper could hit $4,000 a tonne the final quarter of next year, though it added that such a decline is likely to prompt accelerated mine closures that should ultimately realign supply with demand.
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We attribute the latest selloff to a stronger dollar, fund selling and a market that still remains well supplied. On the latter score, Cochilco now expects Chile to produce 5.88 mln tons of copper in 2015, lower than its April estimate, but still up from 5.78 mln produced last year.
In addition, local Chinese production is growing and we suspect it is displacing Chilean imports. Indeed, Chinese refined imports declined 11% y-on-y to 1.68 million tons, but ore imports have risen 11% over this same period, fueling an equivalent percentage increase in local supply y-t-d, thus eating into Chile’s market share.
In other news, the ICSG sees copper in a 62,000-ton surplus (through April) compared to a 436,000-ton deficit during the same period in 2014. Price-wise, Cochilco is calling for an average copper price of $6106 this year before falling to $5950 in 2016. The latest Reuters poll has the numbers in opposite order, with an average of $5950 projected for 2015 year and $6250 for 2016.
Copper and other base metals slipped on Wednesday as the dollar strengthened on speculation that the United States was closer to hiking interest rates. Losses were held in check, however, after data showed activity in the services sector of China, the world's top metals consumer, expanded in July at its fastest pace in 11 months.
Markets were pressured by the dollar hitting a 3-1/2 month peak against a basket of currencies on Wednesday after a voting member of the U.S. Federal Reserve's policy-setting committee expressed support for an interest rate hike in September. A stronger dollar makes commodities priced in the U.S. currency more expensive to buyers using other currencies.
Three-month copper on the London Metal Exchange dropped 0.3 percent to $5,205 a tonne in official trading, after closing little changed in the previous session but within reach of Monday's six-year lows at $5,142 a tonne.
Despite Wednesday's stronger data on Chinese services, slowing factory growth is still weighing on metals markets.
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