Copper Insights: December 2023

CME Active Copper (HGZ3) ended October close to where it started at 365 ¢/lb., although that was not before it hit a one-year inter-day low of 358 ¢/lb., close to the start of the month. China’s property sector woes, weak copper demand in the advanced economies and relatively uninterrupted mine supply, coupled with Middle East geopolitical uncertainties and the recent move higher in longer duration U.S. government Treasury yields, have been driving copper price formation. However, some of the recent bearishness seems overdone given prospective 2024 S/D fundamentals and continuing strong investor interest in copper and its exposure to the green economy. Consequently, we still expect the market to end the year in the mid-380s ¢/lb., although a lower quarter to date price means the 3M Q4 average is now expected to be 358 ¢/lb.

The breakdown of positioning in the Commitment of Trader reports on COMEX show investor sentiment soured in the middle of October before recovering towards the end of the month. However, the recovery in sentiment was not enough to pull copper out of a net short position, which remains at 20,760 lots.

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Market participants continue to highlight weakness in cathode and scrap demand in the U.S. market. Buyers are not very active, with indications that metal is readily available on contract and in stocks, despite hopes that these would have been exhausted by now. Most of the weakness is in relation to the construction sector, with some of the largest building wire producers noting softness in their end-use demand. However, it is not all negative, with end-use sectors such as data centers and EVs growing in the local market and provided some counterbalancing support for regional demand. Nevertheless, we still expect a small contraction in U.S. and North American demand this year. 

In Europe, the market did not see the pickup in cathode demand it had hoped for after the summer. Volumes booked for September, October and November have shown no signs of improvement, and in some cases, demand has fallen further. Europe’s biggest copper consumer, Germany (29% of the market), is heading for its fourth consecutive quarter of negative GDP growth. And with the ECB’s recent move to its highest ever main refinancing rate of 4.5%, the market does not see any let-up in European demand weakness for the remainder of this year. 

With regards to inventories, COMEX warehouse stock levels have seen a small fall since August. As of October 30, open tonnage on COMEX was just 17,850 t. Overall copper stocks on global exchanges were 232,780 t at the end of October, up nearly 50,000 t since August.

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In China, copper wire rod deliveries and new orders increased in October amid falling SHFE copper prices. Furthermore, improving demand has helped most wire rod producers purchase more raw materials and reduce finished product inventory. It is noteworthy that there was no post-holiday slowdown in the last two weeks in October, with the wire rod utilization rate reaching 74% in the past fortnight.

The recovery of state grid investment in September has led to strong demand for wire and cable products. Most wire and cable companies have received more orders due to falling copper prices. 

With the support from the opened arbitrage window, bonded warehouse stocks in Shanghai fell by 15,000 t in the last two weeks of October and now sit at a historically low 12,000-18,000 t. SHFE non-bonded warehouse stocks decreased by 20,486 t over the past two weeks and amounted to 36,390 t as of October 27. We estimate total visible copper stocks in China at 54,590, a record low.

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With a lack of recent mine disruptions, mine supply has continued to improve from 2023 H1. Notably, Chinese concentrate imports from Chile and Peru saw robust growth in August, surging by 36% compared to July 2023 – suggesting South American mines have overcome challenges seen earlier in the year. The latest round of production reports from key miners support this with a small amount of production guidance downgrades in Q3 2023. 

However, near-term mine supply risks remain. Late October saw social unrest in Panama following the government’s agreement to a new 20 year contract with the local unit of First Quantum’s 385,000 t /y Cobre Panama mine. This led to the President announcing that a citizen’s vote will be held on the December 17 in relation to this contract. Supply risks associated with this latest development could be reflected in copper concentrate treatment charges in the coming months.

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• Copper Insights: September 2023
• Copper Insights: July 2023
• Copper Insights: April 2023
• Copper Insights: March 2023
• Copper Insights: November 2022
• Copper Insights: August 2022
• Copper Insights: April 2022

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