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In this report
Copper steadies ahead of seasonal uptick in activity
The positive sentiment that saw prices climb by 5% in July to a 3- Month COMEX cash settlement high of $4.01 /lb quickly dissipated, seeing prices retreat to $3.66 /lb on August 15. This was the weakest settlement since May 31, back when news of poor April data from China and fears of a U.S. debt default dominated headlines. This time it was the release of underwhelming July manufacturing PMI data from the U.S. (ISM at 46.4 vs. consensus of 46.9) and from China (Caixin at 49.2 vs. consensus of 50.1) that set the tone for the month. These preceded the publication of weak Chinese trade data on August 8 (imports -12.4% y/y, exports -14.5% y/y) before ever-present concerns surrounding the Chinese real estate sector once again took hold.
Speculators net short on COMEX in August
The breakdown of positioning in the Commitment of Trader reports on COMEX show investors turned bearish through August. The neutral investor position at the start of the month turned net short as the slew of weak macro data dented sentiment. As of August 22 the net short position reached 24,615 lots. Despite this, prices recouped some of the losses from the first half of the month, reaching 3.82 ¢/lb on the final day of August as Chinese stimulus policy aimed at stabilising the damaged real -estate sector boosted market confidence.
Weak summer for U.S. and European copper demand
U.S. cathode demand remained subdued throughout the summer months, with August being no exception. Several consumers are still either declaring minimum offtake or looking to push back contracted tonnages, which means it is likely suppliers are beginning to build stock. Wirerod producers are currently sitting on inventory and pessimistic about H2, which has limited their forward buying. At brass mills, orders for their products have deteriorated in the last few months, and order books also show no sign of an improvement beyond summer. Due to the on-going market weakness, we have downgraded our U.S. cathode consumption growth in 2023 from flat to -1.9% y/y.
While in Europe, our recent conversations with industry contacts suggests that there have been no improvements since the start of summer to the weak near-term demand outlook. Germany, which accounts for around one-third of European refined copper consumption, is the main concern with the economy in a technical recession and survey-based indicators pointing to more weakness ahead. As reported previously, the non-wirerod - or so-called “brassmill” - sector (~38% of German cathode demand) is especially weak.
With regards to inventories, COMEX warehouse stock levels have been stable. As of August 31, open tonnage on COMEX was 25,942 t. Overall copper stocks on global exchanges were 172,660 t on the same date, pretty much unchanged since June.
China – Strong copper consumption in H1
During August, we conducted on-site interviews with 11 companies in Guangdong Province to gain further insights into local copper demand.
We found that most companies showed positive year-on-year growth in semis production. In particular, copper tube production increased by more than 15% y/y in H1, and the output of copper bars and copper rods increased by more than 10%.
In contrast, imports to China fell 12.4% y/y during the same period, which was in large part related to the ongoing malaise in the real estate sector. Imports of unwrought copper and copper products slid by 2.7% y/y to 451,159 /t in July, leaving ytd imports 10.7% lower than 2022 at 3.04 Mt.
Visible cathode stocks in China declined by almost 9,549 t in August to 96,585 t, with SHFE stocks down 11,549 t to 40,585 t partly offset by a 2,000 t increase in bonded inventories.
Supply side stable
In the absence of recent disruptions, the supply side of the market appears to have stabilizsed. Indonesian concentrates continue to reach the market after the awarding of new export licenses to Freeport Indonesia and Amman Mineral in late July. The first export from Teck’s new QB2 mine is expected in September. While the military presence on Peru’s southern mining corridor has been extended until at least the end of October, reducing risks associated with social unrest.
Past reports
The opinions and statements contained in the commentary on this page do not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs. This content has been produced by CRU International. CME Group has not had any input into the content and neither CME Group nor its affiliates shall be responsible or liable for the same.
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