Copper MMI Unable To Rally Despite Shutdowns, Small Gain

by Raul de Frutos on NOVEMBER 10, 2015

Our copper MMI index rose by just 1 point in November to 66 from 65 in October.

Like other base metals, copper prices have been more stable over the past three months. After the metal plummeted during the summer, prices recovered from six-year lows on the back of supply cuts by major producers. However, we still see a lot of price weakness across the board and the fact that prices are not able to fully rally on supply cuts may be indicative of the fact that we have yet to see a floor for copper prices.

In early November, Glencore announced that it would reduce its copper production more than expected. The company is now aiming to cut output by 455,000 metric tons by the end of 2017, 14% up from its previously announced figures. Glencore’s cuts and another recently announced pullback in production from Freeport-McMoRan could raise hopes of more shutdowns, however, other major producers have indicated that they don’t have any intention of cutting production.

Low Prices, Lower Costs

Despite low prices, many copper producers are still earning decent profits thanks to lower operating costs. BHP Billiton and Rio Tinto Group are ramping up their copper production.

In fact, BHP says that its mines are still generating cash. The company is confident that its well-diversified and low-cost portfolio will keep generating profits in spite of falling prices. Meanwhile, Rio Tinto announced no intentions to cut its production and lose market share. Thanks to its low-cost assets, the company sees an opportunity to actually increase its market share by expanding its Oyu Tolgoi copper mine in Mongolia

Given that 45% of copper demand comes from China, the slowdown in the Chinese economy offset the boost from production cuts on copper prices. So far, mine shutdowns have been unsuccessful in triggering a bull run. It seems that production cuts are only giving support to falling copper prices but it remains unclear if these shutdowns would hold prices against more disappointing macroeconomic releases coming from China.

What This Means For Metal Buyers

Copper is not giving buyers any reason to panic on mine shutdowns. While we have a strong dollar, weak Chinese demand and a still-bearish commodity environment it will be hard to see copper making significant upside moves. Refer to our monthly outlook for key price levels that we are seeing in copper markets at the moment.

Price Trends

Prices worldwide were pretty stable this month. The biggest gains were in Japanese copper primary cash with a 4% increase to $5.395 per mt and a 6% increase in Korean copper strip prices to $7.48 per kilogram. On the downside, The price of US copper producer grade 102, 110 and 122 all saw a small 1% decrease this month.