The Aurubis Copper Mail informs you monthly about current trends on the copper market.

Transcription

1 Copper Mail No. 137 June 30, 2016 The Aurubis Copper Mail informs you monthly about current trends on the copper market. In focus In a referendum held on June 23, 2016, a majority of the British population voted in favor of leaving the European Union. This move is something many people had no longer expected. The shock at this unexpected decision is ongoing, creating great confusion at all levels. It is difficult to predict what the specific consequences will be, but they include everything up to the possible separation of Scotland and Northern Ireland from the United Kingdom. These events have brought major fluctuations on international financial markets. Britain s currency, the pound sterling which is, after all, a global reserve currency fell to its lowest level against the US dollar since September Copper, by contrast, weathered the shock well, and the price of gold rose sharply. 1

2 Economic situation The aftershocks of the Brexit vote are ongoing. Amid this situation, central banks are sending clear signals that they will do whatever it takes, such as providing liquidity assistance for banks, in order to ensure the smooth functioning of the financial system and prevent the foreign exchange market from drying up. The uncertainty on international financial markets has also affected China and its currency, the renminbi. The downward pressure against the dollar that had been noted anyway in recent weeks was amplified by the vote, so the Chinese central bank is said to have intervened. China s prime minister stressed that China is able to ward off systemic risks and reiterated previous forecasts of between 6.5 and 7 % economic growth for Despite the British exit, he said that his country wished to continue to expand its economic ties with the EU and the UK. In the United States, the Fed is likely to reconsider its interest rate plans, as Britain s departure from the EU also poses a risk to the US economy. The next phase of tightening is therefore likely to be postponed for the time being, although the US economy will probably maintain its growth in the second quarter of 2016 (Q1 2016: plus 1.1 %). 2

3 Copper essentials Although the metal markets have recently been viewed in increasingly close connection with overall economic developments, the Brexit decision has not occasioned any unusual developments on the copper market so far. Its effects have primarily been felt in the financial sector and less in the raw materials industry. In the raw materials sector, the Börsen-Zeitung (a German daily newspaper for the financial industry) points only to US mining firm Newmont Mining, which is more dependent on business with Britain than practically any other US company, with the UK accounting for 64 % of its sales. It states that, on the other hand, the company is benefiting from a sharp rise in gold prices, as it specializes primarily in gold production. Copper concentrates and cathodes accounted for just 16 % of Newmont Mining s sales in 2015, according to the company s annual report. Other major raw materials groups are continuing to pursue their expansion plans. BHP Billiton plans to increase its budget for exploration of new oil, gas, and copper deposits by 29 %. Rio Tinto plans to achieve further growth through new projects in copper and oil. According to the Frankfurter Allgemeine Zeitung (a German daily newspaper), the industry is also assuming that leading mining companies will maintain their corporate headquarters in London. Britain s demand for copper is also minor, at about 33,000 t of refined copper this year. Aside from Brexit, other important news has come once again from China: According to media reports on a copper event by Metal Bulletin-AMM in New York, China s Strategic Reserve Bureau (SRB) plans to purchase another 50,000 t of copper, which thus won t be available to the free market anymore. The corresponding annual volume of copper cathodes will therefore increase to 200,000 t. Although these purchases are 100,000 t in all below the figure for last year, which stood at 300,000 t, they are still important against the background of the largely balanced global copper balance minus 40,000 t in March (ICSG). According to the reports, SRB had intended its activities this time around more as a way to help domestic mills, instead of acting based on pricing policy considerations as it had done in previous years. 3

4 Price trend After starting out at about US$ 4,600/t (LME Settlement), June brought a volatile price performance for copper, which reached a low of US$ 4,504/t on June 10. Copper stood at US$ 4,747/t on the day of the British referendum, with prices hovering slightly below US$ 4,700/t immediately afterward. Starting on June 27, prices of more than US$ 4,800/t were achieved outside of official exchange trading, for a seven-week high. This strengthening trend is attributed to a number of factors, especially renewed slackening in the US dollar. According to the Financial Times, hedge funds and other investors have also reduced their bets on falling prices. The backwardation for this three-month period yielded no fundamental changes. It continued to stand at less than US$ 20/t. 4

5 Copper raw materials In May, Peru overtook Chile for the first time as the largest supplier of concentrate for China. China imported a total of 1.43 million t of copper concentrate in May (+13.3 % from the previous month), about 422,000 t of it from Peru (+142 % from the same month of last year). This sharp increase is the result of increased production from new projects and expansion of existing mines. China s high concentrate imports prove that the Chinese mills utilized the market trend, with rising TC/RCs, to make additional purchases, so they should have a good cushion of inventory at this point. The TC/RC level for spot transactions between mines and Chinese smelters during the month of June is stated in various market reports as being US$ 100/10 to US$ 105/10.5. This shows that even the smelters supply policy that is aimed at building inventory is hardly a counterbalance to the good volume flow from mines. This flow has to do with more than just new projects; it is also a product of relatively disruption-free production performance. In previous years, the mining sector had suffered repeatedly from sudden 5

6 production losses caused by natural events, strikes and technical disruptions. There have been hardly any occurrences like these in In addition, traders are supposed to have increased their activity on the sales side before the summer. The Zambian mining minister expects the coming year to bring significantly greater copper production in that country, attributing this to measures taken by mining companies to optimize production. After 712,000 t in 2015, he assumes this year will bring a 5.5 % increase, to 750,000 t, and he expects double that amount in 2017, at 1.5 million t. The clouds looming over the international copper scrap markets seem to be lingering, and the mood at the fifth MB Copper Recycling Conference held just recently in Munich was subdued as a result. Supply remained short in Europe, as elsewhere, in June; with demand good, refining charges were kept at a low level. The reasons for the shortage are uncertain, as are the prospects going forward. Every stage of the supply chain for copper scrap is affected. The behavior of primary suppliers is especially decisive, meaning those players that gather materials and then resell them to dealers and processors. In their case, a great deal depends on the assessment of the copper price and that price is simply not very predictable these days. However, there is also a correlation with the trend in iron scrap prices, as recycling firm European Metal Recycling (EMR) reported during the conference. In general, it is still the case that higher metal prices could provide some relief here, even with the upcoming summer break, helping to ease the market supply. Production The good availability of copper concentrates on the world market has driven an increase in production of refined copper in China, which is up nearly 10 %, at 3.4 million t in the first five months of The fact that the Chinese government is not willing to accept excesses, however, and is pursuing structural optimization of industries is especially apparent from the steel market, where the production cut ordered by the Chinese government is taking hold. Production of copper products in China rose to 1.8 million t in May 2016, an increase of 11.5 % from the same month of the previous year and 7.2 % from the previous month (National Bureau of Statistics). This means that the first five months of 2016 brought an increase of 10.5 %, to 7.65 million t. 6

7 Inventories The confusion surrounding the shifts in copper inventories on the metal exchanges continued in June. Viewed overall, exchange inventories fell by about 28,000 t, to 402,723 t, until June 27, While SHFE stocks decreased by 66,000 t, to 155,000 t, the trend was in the opposite direction for the LME. Within just a few days at the start of the month, stock levels there rose by about 59,000 t, to 213,000 t, afterward declining to 192,000 t by June 27. About 42,000 t of the sudden increase wound up at the LME warehouse in Singapore, a volume roughly equal to Chinese exports of refined copper to the city-state. The very minor changes in stocks at the American Comex had no effect. Volume changes at the Shanghai bonded warehouse were also relatively minor, with an estimated increase of 10,000 t to approximately 600,000 t. Product markets According to information from the German Association of the Automotive Industry (VDA), the major automotive markets of Western Europe and China saw significant growth in May, 7

8 posting a double-digit increase. In the United States, sales were lower as a result of the fact that there were two fewer sales days in the month. The figures for Western Europe were buoyed by the lasting recovery of the economy there. New passenger car registrations rose by 15 % there, to more than 1.2 million passenger cars. In Italy and Spain, car rental agencies renewed vehicle fleets ahead of the summer vacation season, which also boosted demand. According to the German Electrical and Electronic Manufacturers Association (ZVEI), the German electrical and electronic industry saw a renewed increase in order volume in April, for an increase of 2.7 % year over year. This incoming momentum was roughly evenly divided between Germany and all other countries. 34 % of companies in the industry view their situation as good, and 53 % say it is stable. The majority 70 % expect activity to remain the same over the next six months. 8