A month that started with the strongest China Manufacturing PMI in over a decade at 52.6, and a pick-up in onshore copper demand in China, looked set to consign February’s slip in prices as a blip in the trend of strengthening prices into Q2 and beyond. However, the collapse of Silicon Valley Bank and subsequent fears that larger organisations employing the well-worn ‘borrow short, lend long’ arbitrage strategy would be vulnerable to contagion put paid to this, with investors instead seeking shelter from risk across asset classes.

Mounting pressure saw heavy volumes exchanged in the week beginning 13 March as heightened volatility in interest rate markets in particular preceded a sharp sell off on COMEX, with COMEX first position shedding 5.2% to a two-month low of $3.84 /lb on Wednesday 15 March. Falling U.S. Treasury yields from the end of the first week of the month had signalled investor expectations that the Fed would adopt a more dovish stance in response to the unfolding crisis. While news that the central bank would halve the pace of benchmark interest rate increases to 25bps in its fight against inflation presaged a recovery in the last 10 days of the month, nevertheless, COMEX first position could only average ~$4.03 /lb in March.

The breakdown of positioning in the Commitment of Trader Reports (CoTR) on COMEX shows a reduction in speculative net length since the end of January of 44,705 contracts. The COMEX figures indicate an increase of nearly 6,000 contracts in spread positioning, evidence we believe of further copper selling by the investment community as part of relative value (RV) trades. However, despite both the reduction in investor length and RV related selling in February and March, prices have once again retaken the $4.09 /lb in COMEX and are now only ~$0.18 /lb lower than the year to date high of $4.27 /t recorded on January 26. This is a very positive signal. 

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China saw a seasonal demand recovery in March, with utilisation rates at both wirerod and copper tube mills increasing. Demand is being driven by strength in electricity grid and home appliance sectors. In particular, copper flat rolled demand is benefiting from grid related buying, while demand for brass flat rolled products has been soft due to export market weakness. The sharp improvement in copper demand is also testament to signs of the recovery in the real estate sector, led by completions of existing projects, while investments in infrastructure delayed from last year are expected to remain elevated through 2023 H1. Helped by a warm March, construction activity that we believe is the most influential factor in the nearby outlook has come back strongly, exemplified by recent strength in the ferrous complex.

The European copper market is yet to see any improvements to the generally disappointing demand we have seen so far this year. Market participants are currently pessimistic for demand in Q2, with order books yet to see the pickup that was anticipated earlier in the year. Some market participants in Europe have noted the market has started to soften, with signs of a recession starting to show in demand. This is in line with the CRU forecast that Europe will fall into a recession in Q2, as the economy is hit by the brunt of continued tight monetary policy. 

CRU forecasts that US cathode demand will remain flat y/y in 2023. Currently, demand has been steady with support from wirerod demand which has been strong due to its use in electrical conductivity applications. On the other hand, demand for all products related to construction has been subdued as continued tight monetary policy drags on the sector. 

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In China, stocks are drawing as would be expected following CNY, although some of this metal is leaving for locations in Asia on the reverse arbitrage. In the Atlantic economies, inventories have drawn over the last month although we would expect a nearby reversal of this trend with impending cargoes from South America. Nevertheless, available metal is likely to remain at historically low levels as end users appear happy to risk living on a hand to mouth basis out of fear of impending recessions, so that through-cycle strength in GET demand has the potential to keep these markets tight.

Overall demand improvements in China have resulted in a decrease in SHFE nonbonded warehouse stocks. SHFE non-bonded warehouse stocks decreased by 91,303 t since the last week of February to 161,323 t on 24 March. However, total bonded stocks continued to increase in the first couple of weeks of March due to the lag between Chinese smelters delivering copper to bonded warehouses and the ultimate exportation of that material. We estimate total visible copper stocks in China reached 330,558 t on 31 March.

In the US, COMEX inventories have been in decline over the last month, hitting year lows of 14,300 t at the start of March and remaining at that level.

Overall, copper stocks on global exchanges have fallen from YTD highs of 337,000 t in mid-February to 239,000 t on 29 March, significantly below historical levels with the exception of 2022.

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The year started with a series of disruptions for copper supply predominantly in South America, Africa and Indonesia. In March, we have seen disruption ease in all of these locations, reducing concerns about near-term availability nonetheless, we forecast disruption for 2023 to remain elevated on previous years. 

Mining and processing at Freeport Indonesia’s Grasberg operation recommenced in late February, after a stoppage due to heavy rainfall in the second week of February. Shipments from Cobre Panama have also resumed with First Quantum reaching a resolution with Panama’s government on 8 March. First Quantum had ceased ore processing on 23 February after an earlier government order temporarily halted its exports. We understand around 100,000 t of Cobre Panama concentrates are stockpiled at port. 

Recent disruptions at mines and ports in Peru have also eased. Mining and shipments at MMG’s Las Bambas operation resumed during the month. We understand Las Bambas concentrate stockpiles peaked at close to 400,000 t earlier this month, with material now shipping at around 5,000 t/day. We are hearing the Peruvian military have set up stations at key points across the Southern Peru mining corridor in an attempt to prevent a potential reoccurrence of recent road blockades. The impact of seasonal swells on port loading in Chile has so far been limited this year. African export logistics have also started to normalise, with no delays reported for shipments via Durban or Walvis Bay.

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Copper prices are expected to see increases in the near term. We forecast prices to average 435 c/lb in Q2.

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• Copper Insights: March 2023
• Copper Insights: November 2022
• Copper Insights: August 2022
• Copper Insights: April 2022
• Copper Insights: January 2022

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