Copper Prices to Hover Wildly in September on Divergence between Macroeconomy and Fundamentals

SHANGHAI, Sep 6 (SMM) – The contradiction between macro and fundamentals will push copper prices into a wide range of fluctuations. SMM predicts that copper prices in September will fluctuate between 65,000-72,000 yuan/mt.

In terms of macro policy, Premier of the State Council Li Keqiang strengthened relief assistance for market entities at an executive meeting of the State Council, especially for SMEs. The meeting emphasised that further measures will be taken to stabilise the market and keep the economy operating within a reasonable range in response to problems like rising production and operation costs caused by high commodity prices. China has focused on the surge in commodity prices and continued to monitor the development of the situation. It would be necessary for market participants to remain vigilant.

For global economic and currency trends, the US non-farm sector newly created 374,000 jobs in August, far below the expected 600,000, according to ADP National Employment Report. New global COVID-19 cases are still at a relatively high level. The poor performance of economic data has triggered market concerns over a slower economic recovery. In addition, inflation in the Eurozone hit a 10-year high recently. A hawkish tone by European Central Bank officials continued to strengthen the euro against the US dollar for half a month. The US dollar has been under pressure, falling over 1.6% since August 20. The market’s pessimistic expectations that the Fed might announce the taper at the September interest rate meeting have weakened.

On fundamentals, the third batch of bidding for reserves offered by the SRB ended. The 30,000 mt of copper reserves offered combined with the influx of imported copper eased spot tightness. Shortages of copper scrap remain as the biggest positive factor in the market. With the rapid decline of copper prices, copper scrap prices exceeded copper cathode prices, preventing large volumes of copper scrap from being offered for sale. Large volumes of copper cathode has substituted copper scrap. The overall consumption of copper cathode is not weak.

The strike at the Escondida copper mine in August, the world's largest copper mine, ended with a high-priced contract from BHP, lifting the supply crisis from the world's largest copper mine. Chile's state-owned Codelco, the world's largest copper producer, said on September 2 that it had reached an early collective bargaining agreement with five unions representing its main El Teniente mine workers. At present, some labour unions of Codelco's Andina copper mine are still on strike, but this has no major impact on production at copper mines.

According to data from Chile’s National Bureau of Statistics, Chile’s copper production in July 2021 increased by 0.5% year-on-year to 470,262 mt. Despite virus-related restrictions, it still maintained a good production performance. From January to July, Chile's copper production fell by only 0.8%. Chile's copper output has rebounded, and the output in the past two months has shown an increase year-on-year.

According to the TC trend of copper concentrates calculated by SMM, supply of copper concentrate has passed the most tight moment. Since the outbreak of the pandemic at the beginning of last year, the supply of copper concentrate has been in short supply, and TCs of copper concentrate have continued to fall. On April 9, TCs of copper concentrate fell to $29.57/mt. Since then, TCs have begun to rebound all the way as supply recovers. On August 27, the SMM Imported Copper Concentrate Index was $59.08/mt, doubling from the previous low. The price floor of TC/RCs for the third quarter, issued by the CSPT increased slightly compared with the first quarter.

The market still lacks guidance on key information on the macro level in September. With the release of more economic data, it will provide the Fed with clues on the path to its bond purchases reduction.

From the perspective of power consumption, the delivery indicator to the  State Grid for the third quarter has declined. Operating rates of wire and cable companies are unlikely to rise.

Due to China’s strict control of the real estate market, the current housing construction area and newly started area have declined. Under this background, the real estate market in September is expected to remain weak.

On the performance of home appliance ports, the current exports of air conditioners have maintained a high degree of prosperity, boosting copper tube consumption. Orders at enamelled wire companies picked up.

The recent expansion of new energy has accelerated, so downstream copper foil companies have maintained full production, and processing fees have risen. The peak season will set in in September.

Downstream consumption will continue to be smooth in September, and the operating rate of copper semis producers will rebound slightly. Inventory will continue to fall in September. But the inflow of imported copper and the completion of overhaul at smelters caused by power curtailment will slow down the inventory decline. Supply of domestic copper scrap remained tight in August amid low imports. Prices of copper scrap exceeded copper cathode. Supply will continue to be tight if copper prices hover at high levels in September.