Copper Surpasses December High; Strong Demand from China and Supply Constraints Propel Prices

Copper Surpasses December High; Strong Demand from China and Supply Constraints Propel Prices

Copper prices are again gaining momentum in the market amid supply shortage and peak demand in China. COMEX copper futures recovered sharply despite tensions between the United States and Iran, with copper futures rising from USD 2.796 per pound (intraday low on 9 January 2020) to the present high of USD 2.864 (intraday high on 13 January 2020), which underpinned a price appreciation of ~ 2.44 per cent.

Also Read: U.S-Iran Tensions Weighing Down Copper; Short-Term Correction Seems Likely?

Post a fall on 9 January 2019, copper prices took support from tensions around the Chilean supply and ease in Trump’s action over Iran, which took the route of more stringent sanctions rather than market anticipated counterattack by Washington on Tehran.

While geopolitical moves coupled with supply constraints in state-operated Codelco-copper mine in Chile, and BHP Group Limited (ASX:BHP)-operated Escondida copper mine played-out in fanning the copper price, the recently disclosed figures from China also propelled the commodity in the international market.

As per the data released from the General Administration of Customs released yesterday, the import of copper concentrate in China surged by 11.6 per on a yearly basis in 2019 as compared to the previous corresponding period (or pcp).

Albeit, on a monthly basis, the copper concentrate import in China cooled-off, the overall yearly increase in imports across China supported copper prices. As per the data, China imported 1.93 million metric tonnes of copper concentrate in December 2019, which remained ~ 10.65 per cent down against the November 2019 import of 2.16 million metric tonnes.

However, last month’s import of copper concentrate in China remained 31.8 per cent higher than the pcp, which in turn, took the full year (2019) imports to 21.99 million metric tonnes, up by ~ 11.63 per cent against the overall imports of 19.7 million metric tonnes in 2018.

On a yearly basis, the import of unwrought copper declined by 6 per cent, but the same import rose by ~ 9.11 per cent in December 2019 to stand at 527,000 metric tonnes, as compared to the previous month unwrought copper imports of 483,000 metric tonnes. The overall yearly imports of unwrought copper stood at 4.98 million metric tonnes against pcp.

The monthly surge in imports of unwrought copper (allow with less weight of copper) clearly reflected the problem in the copper supply chain, which surfaced recently in the wake of strike across Chile.

Surmounting Smelting Capacity in China

The treatment charges of spot copper concentrate in China fell abruptly in 2019 in the wake of high growing smelting capacity in China which the industry experts believe could increase further. The current disruption in the copper supply chain coupled with higher smelting capacity in China, is expected by the market to widen the copper supply gap from demand, which could further support copper prices.

While the smelting capacity in China stood large, the scrap import in China also declined significantly during the second half of the year 2019 amid embargo on imports of Category 7 scrap in January 2019 and Category 6 in July 2019, which further tighten the copper concentrate availability in China.

While the copper concentrate supply experienced a shortfall, the impetus provided by the local government over power grid and infrastructure development supported the copper demand, leading towards the higher import at the end of the year 2019.

Manufacturing Revives in China

The impetus provided by the local government in China payed-off pretty well in December 2019, which could be inferred from the Caixin Manufacturing Index. In December 2019, the Caixin Manufacturing Index was recorded well above the mean value of 50.0 at 51.5, which though remained below the previous level of 51.8, but reflected an expansion in the manufacturing activities amidst U.S-China trade dispute.

The expansion in manufacturing activities coupled with the development of power grid in China supported the copper demand in the country, with along with high smelting capacity and global supply shortage provided a push for the base metal.

While copper prices are surging in the market, the Internal Copper Study Group has published no further outlook post the recent outlook on copper demand and supply, which depicts the demand and supply to remain muted for a while, till the global growth recovers at the end of the year 2020.

To Know More, Do Read: ICSG Slashes Supply and Demand Outlook for Copper; BHP’s Escondida Disruption Propels ASX Copper Stocks

ASX Copper Stocks Bull Run

Many copper-related stocks on the Australian Securities Exchange such as Metals X Limited (ASX: MLX), Independence Group NL (ASX: IGO), BHP Group Limited (ASX: BHP) are gaining momentum in the market over the gush in copper prices.

Suggested Read: Metals X Limited- The Untold Story Behind the Nifty Copper Operations Mining Suspension

Independence Group NL (ASX:IGO)

The past four-month rally and present rally in copper has supported IGO, and the stock rose from $5.750 (low in October 2019) to the present high of $7.110 (intraday high on 8 January 2020), a rally of ~23.65 per cent, around which the prices are revolving from past few trading sessions and are currently at $6.780.

BHP Group Limited (ASX: BHP)

BHP is currently supported by the twin pillars of iron ore and copper as both the commodities are performing well in the market amid decent demand.

BHP rose from $34.690 (low in October 2019) to the present high of $40.225 (intraday high on 9 January 2019, a rally of ~16 per cent.

Also Read: Iron Ore Gushes as Tropical Cyclone-Blake Raises Supply Concerns

Metals X Limited (ASX: MLX)

Post suspending the Nifty Copper Operations, the stock has plunged continuously; however, now MLX is gaining momentum, and stock recovered from its recent low of $0.096 (intraday low on 18 December 2019) to the present level of $0.064 (intraday high today), which marked a gain of ~ 50.0 per cent.

Key Takeaways

  • Copper prices are again gaining momentum in the market amid supply shortage and peak demand in China.
  • The import of copper concentrate in China surged by 11.6 per on a yearly basis in 2019
  • The monthly surge in imports of unwrought copper (allow with less weight of copper) clearly reflected the problem in the copper supply chain, which surfaced recently in the wake of strike across Chile.
  • While the smelting capacity in China stood large, the scrap import in China also declined significantly during the second half of the year 2019 amid embargo on imports of Category 7 scrap in January 2019 and Category 6 in July 2019, which further tighten the copper concentrate availability in China.
  • Whereas the copper concentrate supply experienced a shortfall, the impetus provided by the local government over power grid and infrastructure development supported the copper demand, leading towards the higher import at the end of the year 2019.
  • In December 2019, the Caixin Manufacturing Index was recorded well above the mean value of 50.0 at 51.5.

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