In a notable market movement, copper prices surged to their highest level in seven months on Wednesday. This significant upturn comes as Chinese smelters, responsible for processing half of the globe’s mined copper, collectively agreed to reduce production.
Market Dynamics Shift
The London Metal Exchange (LME) witnessed benchmark three-month copper reaching a zenith of $8,799 per metric ton, a figure not seen since the start of August 2023. This upward trajectory continued, with prices marginally increasing to $8,790 by midday. Simultaneously, on the Comex market in New York, May delivery copper ascended to $4.06 per pound ($8,932 per tonne), marking a 3.3% rise from the previous day’s close. The Shanghai Futures Exchange (SHFE) also echoed this trend, with copper prices achieving a two-year high.
The catalyst for this market enthusiasm can be traced back to a meeting of China’s most prominent copper smelters in Beijing, where a decision was made to enact a “symbolic cut” in production. Although specific details regarding the volumes and timing of these cuts were not disclosed, the move signals a strategic response to the current market conditions, characterized by fierce competition and plummeting smelter incomes.
“It’s a knee-jerk response to rush in. Interest spiked on SHFE right after the announcement of China’s production cut,” a trader said. “Who will admit they are the first to turn unprofitable?”
Shortages have led to intensifying competition for mined copper concentrates, causing a sharp fall in income for smelters to decade-low levels.
“But it’s important to note that there are around 1.7 million tons per year new ex-China smelter projects that are expected to come online in the second half, which will put more pressure on global concentrate supply,” said Brian Peng, a copper analyst of consultancy CRU.
Brian Peng, a noted copper analyst with consultancy CRU, highlighted the impending pressure on global concentrate supply, exacerbated by new smelter projects outside China slated for the latter half of the year. Data from satellite surveillance underscored the reduction in global smelter activity, particularly within China, further complicating the industry’s landscape.
Demand and Inventory Insights
Despite the trend in copper prices, there is a looming concern over potential demand dampening in China, the world’s leading copper consumer. Shanghai Futures Exchange (SHFE)-monitored warehouse inventories have seen a stark increase, signaling a possible shift in demand dynamics. Upcoming loan data from China, including total social financing numbers, is anticipated to shed light on the future direction of metals consumption.
Source: Mining.com
