Metals: Copper Hits Lowest Charges Since 2013

Quick Look

• Copper treatment charges in China hit a low of US$19.8/ton, the lowest since 2013, indicating smelting overcapacity.
• China’s refined metal output reached a record high in December, driven by demand from the green energy sector.
• Annual contracts for copper treatment are set at US$80/ton for 2024, marking a 9% year-on-year decline.
• LME copper prices declined by over 1% DoD as inventory rose to 127,825 tonnes.
• Oil prices increased due to higher demand in China and the US amidst Russia’s gasoline export ban.
• Mixed trends in agricultural and industrial metal markets, with copper prices showing a temporary bearish trend.

The dynamics of the copper market have been particularly intriguing in recent months, with significant movements in both production and pricing. A notable development is the plunge in spot treatment charges in China to US$19.8/ton, a figure unseen since 2013. This sharp decline underscores a pivotal shift within the metal industry, highlighting overcapacity and expansion in China’s smelting sector. Concurrently, China’s refined copper output soared to unprecedented levels in December, primarily fueled by the burgeoning demand from the green energy sector. However, this surge in production has had consequences on pricing strategies, as evidenced by the 9% decline in annual contracts for copper treatment for 2024 to US$80/ton.

LME: Copper Prices Dip, Inventory Up

The London Metal Exchange (LME) witnessed a notable dip in copper prices by over 1% daily, correlating with an increase in exchange inventories and a sluggish recovery in Chinese demand post-Lunar holidays. This was further compounded by a significant daily addition of 4,925 tonnes to the inventories, marking the largest increase since December 5 and pushing total inventory to 127,825 tonnes. Such movements hint at a deeper contango in the market, suggesting that supply is currently outpacing demand.

Commodity Trends: Oil Up, Copper Down

Beyond copper, the commodity market at large has seen varied movements. Oil prices, for instance, have edged higher, driven by increased spot crude purchases in China and stronger physical market dynamics in the US. Conversely, Russia’s imposition of a six-month ban on gasoline exports aims to bolster domestic demand, affecting global energy markets. The agricultural sector, too, faces challenges, with the European Commission reporting adverse impacts on winter cereal and oilseed crops due to unfavourable weather conditions, affecting global agricultural commodity flows.

Copper’s Bearish Trend: Prices to Watch

As of February 28, 2024, copper prices exhibited a bearish trend, consistently closing below the 3.8800 barrier. This trend, influenced by stochastic negativity and a corrective decline towards 3.8100, suggests potential for further losses with a predicted trading range between 3.8500 and 3.7500. Such analysis indicates a cautious outlook for copper prices amidst a backdrop of increasing inventories and fluctuating demand.