LME cash copper prices have experienced a ‘supercharged recovery’ through the first half of 2020. From a high of US$6,301/t on 16 January, prices collapsed to close at a low of US$4,618/t on 23 March before turning upwards, in a trend which has accelerated over the past month. Copper closed at US$6,194/t on 8 July, effectively completing a 90% rebound from the March low, with prices seemingly poised to move higher still through the remainder of July.
While speculation may have contributed to the resurgence in prices, there is no doubt that the physical availability of refined metal has tightened appreciably. Total exchange inventories have declined by 227kt from 616kt at the end of March to 389kt at the end of June, while Shanghai cathode premiums have returned to near US$100/t.
Although COVID-19 related disruptions to primary mine supply in Peru, Panama, Chile, and elsewhere continue to make the headlines, this is only part of the explanation for the unexpectedly resilient rally in prices. Although several mines have been visibly impacted, they are not the most vulnerable link in the world copper supply chain. That role is taken by the generation, recovery, and international trade in copper and copper alloy scrap. Scrap, or secondary copper, accounts for 35% of the global copper market. But the scrap market has been hit hard so far in 2020 by a ‘perfect storm’ of lower prices, personnel operating restrictions, transportation problems, and the strict imposition of Chinese quotas on the volume and quality of its imports. Taken collectively, these factors have resulted in a 25-30% YoY collapse in world international trade flows in copper and alloy scrap in H1 2020, according to analysis by Roskill; this is equivalent to at least a 500kt copper content supply shortage.
This dislocation in scrap supply has enforced a downturn in secondary production and a sharp rise in ‘cathode replacing scrap effect’ at fabricators, particularly in China, where total copper demand saw a strong sequential improvement in Q2. As a consequence, world trade in refined copper was completely flat YoY in H1 2020, indicating no weakness in demand. The news that China has just postponed the introduction of a new scrap import regime (which would have greatly liberated supply by reclassifying ‘waste’ as ‘renewable materials’) from 1 July until year-end indicates that cathode demand, and hence copper prices, will remain robust throughout H2 2020. China will issue more quotas to enable scrap imports to flow through the rest of the year, but at only 50% of the levels seen in 2019.
Roskill released its Copper Demand to 2035, 1st Edition report in August 2019. Click here to download the brochure and sample pages for the report, or to access further information.