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Copper Market Commentary

Metal News - Published on Tue, 14 Jul 2020

Image Source: Copper
Australian government’s Department of Industry, Innovation and Science in Resources and Energy Quarterly: June 2020 said that after a dramatic fall in the copper price in the first four months of the year, to a low of US$4,620 a tonne at the end of March, prices have recently strengthened. Copper prices have been impacted by both the COVID-19 induced slowdown in economic activity and pessimistic expectations about the world economy going forward. Towards the end of the June quarter, prices improved slightly, supported by expectations of production constraints and improved economic conditions. In the June quarter, the LME copper spot price averaged an estimated US$5,250 a tonne, 14 per cent lower year-on-year. After building in the March quarter, stock levels fell in the June quarter, as China's imports returned to previous levels.

Copper prices are expected to strengthen over the remainder of the year, though without reaching 2019 levels. In 2020, the LME copper spot price is forecast to average US$5,560 a tonne, 7.5 per cent lower than the 2019 average of $6,000 a tonne. The forecast for world copper consumption in 2020 has been revised down, and a market surplus is expected in both. Although it is difficult to know how the COVID-19 pandemic and the anticipated economic recovery will unfold, current indicators suggest the largest impact on world economic activity will have been in the June quarter 2020. Full year consumption is expected to fall, although government stimulatory measures may provide some support to usage in the second half of 2020. Towards the end of the outlook period, copper prices are forecast to rise steadily, in line with gradual improvements in economic activity and falling copper inventories. The copper price is forecast to rise 6.0 per cent a year to average US$6,240 a tonne in 2022.

Forecast world copper consumption has been revised down, as the impacts of COVID-19 alter the economic landscape. In 2020, negative world GDP growth and extremely weak industrial production are expected to weigh on copper use: copper consumption is forecast to fall 2.5 per cent to 23 million tonnes. China is expected to drive the decline in world copper consumption, given it consumes around half of the world's copper, followed by Europe and the US. Although China's industrial production figures have improved, China s copper consumption is forecast to fall 2-3 per cent in 2020. Copper used in China s auto manufacturing sector dropped significantly in the March quarter with extended industrial shutdowns, the effect of which has been replicated in Europe and the US. In China, stimulus measures may support consumption, as well as government programs to stockpile copper concentrates to both support product markets and alleviate supply chain shortages.

In 2021 and 2022, a gradual lift in economic activity is expected to support copper usage. World consumption is forecast to reach 25 million tonnes in 2022, up an average 2.9 per cent a year. This forecast is dependent on economic growth in China as well as the rest of the world. Stronger economic growth is expected to support higher copper consumption for traditional uses like infrastructure and construction, which may be the target of government stimulus spending. There is also a growing role for copper in low-carbon technologies, including renewable electricity generation, electric vehicles and grid infrastructure, which is expected to support copper usage over the medium-long term.

Low prices, lower consumption and industrial shutdowns are expected to lead to a fall in copper production in 2020. World mine production is forecast to contract 2.4 per cent to 20 million tonnes in 2020. The immediate impacts of COVID-19 shutdowns on major producers are still becoming apparent. In the March quarter, mine closures led to lower production in Peru, China and Africa. In many instances concentrate stocks have been used to maintain refinery processing. In Chile, the world's largest copper producer, total copper output increased in the March quarter, as large facilities continued to produce amid national shutdowns. Production from the state-owned Codelco and BHP's Escondida mine increased in the March quarter, as production was maintained with a reduced workforce. Large output reductions have been experienced at other facilities, including First Quantum s Cobre Panama mine, which temporarily suspended operations in April and the El Abra copper mine, where processing activity was reduced by 40 per cent due to COVID-19. The Las Bambas copper mine in Peru has also reduced operations.

Mine production is expected to recover amid improved prices and normalised operating conditions. World mine production is forecast to reach 22 million tonnes in 2022, growing 4.9 per cent a year. Low copper prices have impacted the copper development pipeline with a number of new projects put on hold or expansions delayed.

Refined copper production has been weighed down by plant closures, as well as constraints on refinery inputs, including supplies of concentrate and sulphuric acid. In the March quarter 2020, lower production in China and Russia were major contributors to the quarter-on-quarter decline in world refined production. Rio Tinto's Kennecott mine and smelter facilities in the US also decreased production, following an earthquake in March. Refined production is forecast to decline by 1.7 per cent to 23 million tonnes in 2020, primarily due to constrained production in China. As prices improve and new refinery capacity comes online, production is forecast to increase an average 2.9 per cent a year to reach 25 million tonnes in 2022. Secondary copper production has been constrained by shutdowns in China and Malaysia, followed by lower consumption requirements. Going forward market uncertainty, including uneconomic prices for some mines and lacklustre demand, are expected to influence copper production levels.

WorldUnit20192020E2021F2022F202020212022
Production-minekt20689201862113422211-2.44.75.1
Production- refinedkt23690232862410124655-1.73.52.3
Consumptionkt23573229882382324513-2.53.62.9
Closing stockskt1394139013171139-0.3-5.2-13.5
- weeks of consumption3.13.12.92.40.8-8.5-16.0
 


LME Price
WorldUnit20192020E2021F2022F202020212022
- nominalUS$/t6005555559686235-7.57.44.5
- nominalUSc/lb272252271283-7.57.44.5
- realbUS$/t6132555558455967-9.45.22.1
- realbUSc/lb278252265271-9.45.22.1
 


Notes: b In 2020 calendar year US dollars; c Quantities refer to gross weight of all ores and concentrates, d In 2019-20 financial year Australian dollars; f Forecast: E Estimate

Source: ABS (2020) International Trade; LME spot pnce; World Bureau of Metal Statistics (2020); Department of Industry Science Energy and Resources (2020)

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Posted By : Yogender Pancholi on Tue, 14 Jul 2020
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