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MARKET ANALYSIS OF CURRENT TREND FOR COPPER METAL

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by - 9/6/2015 2265 Views

COPPER - "The Red Metal"

In the Northern Miner interview with Julian Kettle head of metals and mining research at Wood Mackenzie in London:

"Copper is always the most interesting metal, and the issue with copper is that we get disruptions to supply on an ongoing basis. Mine disruptions will typically vary from 3-8% of global copper supply, but this year we think it's going to be above trend at 5-5.5%. So this year, we'll see about 1 million tonnes of copper supply taken out of the market. (source: http://www.marketoracle.co.uk/Article48772.html)

It is worth interesting to note that, Copper also known as “RED METAL” is the World's Most Reusable Resource. For almost 5,000 years, copper was the only metal known to man. In the modernized & developing world where urbanization is in process, copper is one of the most used and reused of our "modern" metals. The simple reason being, copper has an infinite recyclable life. Copper was first used by humans more than 10,000 years ago. A copper pendant discovered in the present northern Iraq has been dated about 8700 B.C.

Known worldwide copper resources are estimated at nearly 5.8 trillion pounds of which only about 0.7 trillion pounds (12%) have been mined throughout history... and nearly all of that is still in circulation, because copper's recycling rate is higher than that of any other engineering metal.

Each year in the U.S.A., nearly as much copper is recovered from recycled material as is derived from newly mined ore... and when you exclude wire production, most of which uses newly refined copper, the amount of copper used by copper and brass mills, ingot makers, foundries, powder plants and other industries shows that nearly three-fourths (72%) comes from recycled copper scrap.

The recycling value of copper is beyond human comprehension such that premium-grade scrap normally has at least 95% of the value of the primary metal from newly mined ore.  The ability to reuse copper extracted from recycled product is a tribute to an industry that's environmentally conscious regarding its use of natural resources on behalf of consumers.

            In order to analyse the current market trend for the “RED METAL” scrap, we need to see what delve into how the market played in 2014. Based on my analysis for all the metals, the overall market trend for Copper portrayed a low of $6,321 per tonne in March 2014 before reversing the downward trend. But the downward trend bounced back in two phases to reach $7,212 – the rally looks healthy & stable but prices are nearing a heavy band of potential overhead supply that runs up to $7,460. For now, we see this as a rebound within the long-term downward trend; the pessimistic fundamentals support this view.

                                 

            

“The third quarter was a continuation of the very good second quarter. Not only the good market environment contributed to this but also the high ongoing productivity of our facilities. In addition to a stable market environment, we expect first and foremost a high operating performance in all divisions. As long as there are no extraordinary events, the operating results for fiscal year 2014/15 should be verygood – possibly the best results in the company’s history,” concluded Dr. Bernd Drouven, Chairman of the Aurubis AG Executive Board.

 

ICSG (International Copper Study Group) projections for 2014 portray that world apparent refined copper demand is expected to exceed refined copper production by about 300,000 metric tonnes (t). According to ICSG projections for 2015, after five consecutive years of apparent deficits, the copper market could show a production surplus surpassing the demand. World production of refined copper is expected to exceed demand for refined copper by about 390,000 t, as demand will lag behind the growth in production.

 

In developing its projections, ICSG recognized that the global market balances could vary from those projected owing to numerous factors that could reduce or enhance projections for both production and usage.

After a growth of 8% in 2013, world mine production is expected to grow by around 3% in 2014 to 18.6 Mt (million tonnes) compared with that in 2013. Operational failures combined with delays in ramp-up production and start-up of new mines are leading to lower than anticipated growth. Strong growth in world mine production is however expected in 2015 owing to additional output from expansions and new mine projects. After adjusting by historical disruption factors, world mine production is anticipated to grow by around 7% in 2015. Most of the new production is expected to be in the form of copper in concentrate.

 

In 2014, world refined copper production is expected to increase by around 5% to 22.1 Mt compared with that in 2013 mainly supported by expanded capacity at electrolytic plants in China (and to a lesser extent from expanded SX-EW capacity in Africa). Primary refined production (excluding SX-EW) is expected to grow by 7% benefiting from adequate availability of concentrate while secondary production growth is foreseen at 2% impacted by tightness in the scrap market. In 2015, the world refined copper production is expected to grow further by around 4% to 23.1 Mt.

 

ICSG expects world apparent refined demand in 2014 to grow by about 5% from that in 2013 to 22.4 Mt partially supported by the tightness in the scrap market. Apparent demand in China is expected to increase by about 7% in 2014. Usage in the rest of the world is expected to increase by about 3.5%. For 2015, although industrial demand growth in China is expected at 5%, the growth in apparent refined usage is expected at 1.8%. Therefore, world apparent usage growth in 2015 is expected at around 1%

although underlying industrial demand growth is expected to be higher.

(Source: International Copper Study Group Press Release Date issued: 14th October 2014 Copper Market Forecast 2014-2015)

According to the Press Release of World Bureau on 19th Aug 2015 in the edition of METALS BALANCES Jan to June 2015,

Copper market records surplus in January to June 2015:

The copper market recorded a surplus of 151 kt in January to June 2015 which follows a surplus of 295 kt in the whole of 2014. Reported stocks fell during both May and June but remained 93 kt higher than at the end of December 2014 No allowance is made in the consumption calculation for unreported stock changes, particularly in the Chinese government stockpile

World mine production in January to June 2015 was 9.45 million tonnes which was 3.8 per cent higher than in the same period in 2014. Global refined production rose to 11.25 million tonnes up 2.4 per cent compared with the previous year with a significant increase recorded in China (up 161 kt) and India (up 48 kt).

Global consumption for January to June 2015 was 11099 kt compared to 11231 kt for the same months of 2014. Chinese apparent consumption in January to June 2015 fell by 63 kt to 5337 kt which represented 48.1 per cent of global demand. EU28 production rose by 0.5 per cent and demand was, at 1783 kt, 6.8 per cent above the January to June 2014 total.

In June 2015, refined copper production was 1958.1 kt and consumption was 1873.0 kt.

 

Copper market records surplus in January to May 2015:

The copper market recorded a surplus of 196 kt in January to May 2015 which follows a surplus of 282 kt in the whole of 2014. Reported stocks rose by 121 kt over the first five months of 2015. No allowance is made in the consumption calculation for unreported stock changes, particularly in the Chinese government stockpile

World mine production in January to May 2015 was 7.82 million tonnes which was 3.5 per cent higher than in the same period in 2014. Global refined production rose to 9.31 million tonnes up 3.2 per cent compared with the previous year with a significant increase recorded in China (up 189 kt).

Global consumption for January to May 2015 was 9113 kt compared to 9276 kt for the same months of 2014. Chinese apparent consumption in January to May 2015 fell by 13 kt to 4438 kt which represented 48.7 per cent of global demand. EU28 production rose by 1.7 per cent and demand was, at 1391 kt, 1.1 per cent above the January to May 2014 total.

In May 2015, refined copper production was 1913.7 kt and consumption was 1870.3 kt.

 

Copper market records surplus in January to April 2015:

The copper market recorded a surplus of 159 kt in January to April 2015 which follows a surplus of 237 kt in the whole of 2014. Reported stocks rose by 212 kt over the first four months of 2015. No allowance is made in the consumption calculation for unreported stock changes, particularly in the Chinese government stockpile

World mine production in January to April 2015 was 6.11 million tonnes which was 1.5 per cent higher than in the same period in 2014. Global refined production rose to 7.42 million tonnes up 3.8 per cent compared with the previous year with a significant increase recorded in China (up 183 kt).

Global consumption for January to April 2015 was 7261 kt compared to 7381 kt for the same months of 2014. Chinese apparent consumption in January to April 2015 fell by 15 kt to 3526 kt which represented 48.6 per cent of global demand. EU28 production rose by 1.7 per cent and demand was, at 1085 kt, 1.5 per cent below the January to April 2014 total.

In April 2015, refined copper production was 1840.1 kt and consumption was 1923.6 kt.

 

Copper market records surplus in January to March 2015:

 The copper market recorded a surplus of 179 kt in January to March 2015 which follows a surplus of 244 kt in the whole of 2014. Reported stocks rose by 256 kt over the first three months of 2015. No allowance is made in the consumption calculation for unreported stock changes, particularly in the Chinese government stockpile

World mine production in January to March 2015 was 4.69 million tonnes which was 3.6 per cent higher than in the same period in 2014. Global refined production rose to 5.57 million tonnes up 4.7 per cent compared with the previous year with a significant increase recorded in China (up 196 kt).

Global consumption for January to March 2015 was 5392 kt compared to 5365 kt for the same months of 2014. Chinese apparent consumption in January to March 2015 rose by 11 kt to 2540 kt which represented 47 per cent of global demand. EU28 production grew by 2.5 per cent and demand was, at 818 kt, 2.4 per cent above the January to March 2014 total.

In March 2015, refined copper production was 1893.1 kt and consumption was 1887.3 kt.

 

Copper market records surplus in January to February 2015:

The copper market recorded a surplus of 209 kt in January to February 2015 which follows a surplus of 241 kt in the whole of 2014. Reported stocks rose by 174 kt over the first two months of 2015. No allowance is made in the consumption calculation for unreported stock changes, particularly in the Chinese government stockpile

World mine production in January to February 2015 was 3.09 million tonnes which was 3.5 per cent higher than in the same period in 2014. Global refined production rose to 3.68 million tonnes up 5.7 per cent compared with the previous year with a significant increase recorded in China (up 139 kt).

Global consumption for January to February 2015 was 3471 kt compared to 3502 kt for the same months of 2014. Chinese apparent consumption in January to February 2015 fell by 24.1 kt to 1597 kt which represented 46 per cent of global demand. EU28 production grew by 3.0 per cent and demand was, at 512 kt, 2.2 per cent below the January to February 2014 total.

In February 2015, refined copper production was 1815.8 kt and consumption was 1663.0 kt.

 

In conclusion, as I look at the RED METAL scrap market, I wish to critically analyse the situation. In January, copper prices hit five-year low due to a combination of sluggish demand, supply growth and a strong US dollar, and, although prices have since rebounded, analysts are generally remaining bearish about the red metal for the rest of 2015. But with production cuts expected from most of the industry’s players, is a supply shortage on the horizon and is the market, which is said to mirror the global economy, set to establish itself?

According to John Mothersole, research director for the IHS Pricing and Purchasing Service with a very pessimistic thinking say, “Inventory has been rising since December and our market balance calculations still show a mild surplus condition for 2015 and 2016, which would tend to point prices down.”

Maritza Araneda, partner at KPMG's Chile firm and commodity lead for copper explains “China consumes approximately 45% of the world's copper and as such the state of the copper market has been closely aligned with the Chinese economy for the last decade. As the demand outlook from China weakens, whether it be through concerns of deceleration in the economy or weaker consumption data, then uncertainty over the country's level of metal consumption will increase. This will in turn impact copper pricing."

The state of the US dollar, which, as the US economy has strengthened, has followed suit, will also continue to play into copper prices. "Copper is traded in US dollars so, simply put, when the dollar strengthens, copper becomes more expensive, which in turn impacts demand," Araneda notes. "Copper prices collapsed in January at a time when the dollar was enjoying its highest levels in six months, and although it's hard to say what will happen with the dollar, my expectation is that it will continue to strengthen on the anticipation of increases in interest rates and growth in the economy."

Yet, despite these bearish trends, production cuts across the copper industry have led some commentators to go in the opposite direction, predicting instead a sharp rise in prices.

Production cuts do need to be taken into account while forecasting copper prices but it must also be balanced with what's happening on the consumption side. "When you put the two sides of the market together, it supports our fundamental view of a modest surplus developing as we progress further through 2015," says Mothersole

But what about further into the future? According to both Mothersole and Araneda, things will - eventually - start to improve. "In terms of a longer-term outlook, I am quite optimistic about copper pricing. Barring a collapse in Chinese demand, I believe that prices will recover as we move back into an excess demand scenario in 2017-2018," Araneda predicts, with Mothersole - albeit slightly less optimistically - agreeing.

"We do see prices eventually beginning to rise but it's a much muted increase at least over the near-term because we continue to see this modest surplus condition, which restrains prices. However, we do see global consumption growth improving and we do see the global economy slowly getting better - this supports a small uptake in pricing, which is what we have in our forecast up to the end of 2016."

Category : Copper

Tags : Copper Scrap Market, Copper the Red Metal Scrap, C


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About Georgy Abraham

As the bright morning of 28th May dawned in the year 1972, in the fulfillment of time according to the plan & will of Almighty Godbrought me forth into this world and I was brought up & educated in Orissa. My parents provided me with the best of education in an English medium school with high standa .... more info

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