Copper prices mounted a sustained rally through December, taking their cue from news of a breakthrough to the impasse in the USA/China trade negotiations, scheduled to be ratified in the signing of a phase-one trade agreement in January. Building on improved business sentiment, LME cash prices rose by 6% from US$5,856/t at the start of the month to a peak of US$6,211/t on the 27th December, before closing the year lower at US$6,156/t. Although this represents little more than a US$190/t gain on LME prices at the end of December 2018 (US$5,965/t), the main positive to be taken is that this is the highest level of prices for eight months, since trading at over US$6,400/t during April.
Copper has not been driven higher solely on a speculative wave of macroeconomic sentiment, as market fundamentals have also played their part. Total exchange inventories (LME + Comex + SHFE) had climbed from 351kt at the close of 2018 to reach a high of 521kt by the end of August 2019. However, these have since tumbled down to only 303kt at the end of December. Meanwhile, Chinese bonded stocks in Shanghai, the other most liquid source of physical material, was attributed to be at the historically low level of 260-270kt according to various sources. Even so, spot cathode premiums for imported brands remain lacklustre due to soft demand, year-end inventory changes, the negative arbitrage, and the earlier than usual start on 24th January of the Lunar New Year holidays.
Local Chinese brands were in plentiful supply during the fourth quarter as refined production surged year-on-year by 17.9% in October and 19.6% in November according to the National Bureau of Statistics. The increases were driven by new capacity coming on stream and refineries striving to meet their annual targets. With tightening imported supplies of anode, blister and scrap, Chinese smelters purchased concentrates on an aggressive scale with November imports of 2.16Mt gross weight setting a new record monthly high, eclipsing the 2.07Mt bought in July. Moreover, Chinese net imports of copper (in all forms, measured in copper content) surged by 10% year-on-year in October and 12% year-on-year in November, suggesting strongly that China’s seven-month long destocking cycle has come to an abrupt end. Roskill expects imminent December trade numbers will confirm this trend.
Where will prices head in 2020? Roskill is cautiously optimistic. First quarter Chinese import quotas for scrap have been set at only 50% of the level they were last year, ensuring that supply from overseas will be very tight. However, scrap supplies in the world outside of China will continue to be relatively abundant and might well improve further in the short term from the recent rally in prices. That’s good news for secondary producers, but also for consumers who will have more flexible options for their raw material requirements. Overall, we expect that plentiful scrap will keep a lid on LME copper prices.
Roskill released the first edition of its new report, Copper Demand to 2035, in August 2019. Click here to download the brochure and sample pages for the report, or access further information.