Copper Market and TC/RS's
Although metal prices have been on the rise so far this year, price gains are coming off low following the steep losses from last year. Iron ore has been so far the “luckiest” gainer. Copper has climbed up from its January extreme lows of 4300 US$/t to 5100 US$/t (+7.8%) as of mid-March.
All this has been on the back of continued poor market conditions, China’s weak economic performance and sustainability of metals demand. Currently, market rumors seem to have a stronger market influence than metals fundamentals and therefore the current “rally” in prices and mining company shares might not be perceived as being sustainable in the short-term.
The mining and metals industry has been forced into heavy measures (production cuts, shut-downs, restructuring, divestments, lay-offs etc.) in pursue to improve their distressed results and balance sheets.
The copper market has not been able to avoid this either. Copper price support has been sought from a range of supply cuts, both in mining and metals production. So far, the realization rate has been too slow to have any meaningful effect. More hope in the needed market rebalancing is put on copper demand development globally and particularly in China. Much of the next few years’ direction depends on China’s 13th Five-Year Plan for individual industry sectors due to be released shortly.
Copper market balances both for refined copper and concentrates are expected to remain in oversupply for next few years but much of it depends on China’s demand development (power grid and construction) and supply side effects (global mine and Chinese smelter cut realization rates).
Global copper in concentrates supply is seen to increase this year from last year’s 14,9 Mt to 15,7 Mt (+4.3%) and in 2017 still another 4,6% to 16,5 Mt. Primary smelter output is respectively forecast to grow 5,3% and 3,4% to 15,6 Mt in 2017 (SNL Metals & Mining).
The spot market for concentrate sales direct to smelters was quiet in February (the Chinese New Year). Since then, there has been a slight tightening of the TC/RC range to $85-90/ton and 8.5-9.0 c/lb at the end of the month, perhaps in anticipation of Chinese smelters post-holiday restocking. Though there has been indications of spot market tightness (especially for clean concentrates), many traders believe in the reverse for the second half of the year with rises in terms.
Sources: SNL Metals & Mining, WoodMackenzie