Project Blue shares its recent thinking on what is driving copper price trends.

Dramatic LME price developments...

From US$8,437/t on 1^st April 2024, LME cash copper prices rallied to a two-year high of US$9,973/t on 30^th April. The price has since retrenched slightly to stand at US$9,900/t last week. LME three-month prices performed even better, reaching a high of US$10,071/t on the 30^th April before softening. LME cash prices averaged US$8,675/t during March and US$9,482/t through April. 

...based on a complex interplay of forces

The rally has been based on several warring and conflicting factors. Improving sentiment, low visible stocks, strong Chinese bulk buying of copper units (yet conflictingly, weak immediate consumption). And, most importantly, a stark medium-term imbalance between demand projections and the ability of the mining industry to deliver the extra primary units required. Throw in a hostile bid by BHP to buy Anglo American, largely on the strength of its copper mining assets, in potentially the biggest mining deal in a decade, and a price frenzy has been the inevitable result. Will it last? “Sell in May and go away” is one old adage, that may or may not be appropriate this time around. Time will tell.

Monthly movements in total exchange stocks and bonded inventories

Total exchange stocks fell 2.75% from 473kt at the end of March to 460kt at the end of April. This is comprised of the accumulated inventories on the London Metal Exchange (LME), the US Commodity Exchange (COMEX), the Shanghai Futures Exchange (SHFE) and the Shanghai International Energy Exchange (INE). Over this time period LME stocks rose from 112kt to 116kt, while COMEX inventories declined from 30kt to 24kt. In China, SHFE stocks eased from 290kt to 287kt, while INE inventories dropped from 41kt to 34kt. In a global market of 26Mt, the current level of total exchange stocks is already equivalent to less than one week’s consumption.

Chinese bonded port stocks, at Shanghai and other locations, are reported to have risen from 60kt at the end of March to 78kt by the end of April. The 18kt increase has been attributed to Chinese refined producers moving their excess producer stocks into bonded areas prior to exporting them to nearby LME Asian warehouses (in South Korea, Taiwan, Malaysia and Singapore). This is to take advantage of a rare arbitrage opportunity when LME prices are higher than those on the SHFE. There are rumours amongst traders that as much as 40-50kt of refined cathode could be exported to these LME warehouses to exploit this fleeting opportunity.

Chinese refined copper exports totalled 23kt in March this year. The last time China exported as much as these rumours suggest, was in March 2023 when 47kt was delivered offshore. The highest volume in recent times was the 61kt exported in April 2022. China only exports sizeable tonnages of refined copper when domestic demand and premiums are weak. 

Strong Chinese supply, but weak consumption

Domestic Chinese output of refined copper still rose by 10.0% yoy to 3.362Mt in Q1 2024, despite whispers of forthcoming cutbacks in Q2, due to a recent collapse in spot TC/RCs that will make some smelters loss-making. More evidence of weak end-use demand conditions was revealed by a 1.2% yoy decline in total semis output in Q1 2024. Moreover, large capacity copper wire rod mills reportedly shut down early ahead of the May national holidays for maintenance and to run down inventories, such was the dearth in orders. Working capital requirements are also a major concern for Chinese fabricators during these times of elevated prices for the red metal. Shanghai spot premiums for Western origin cathode have recently collapsed to zero from US$100/t as recently as mid-December 2023.

Encouraging Chinese copper import data for April and year-to-date

Preliminary data released by the Chinese customs authority revealed that China’s imports of copper concentrate in gross weight terms totalled 2.35Mt in April 2024, broadly unchanged from the 2.333Mt imported in March, but nevertheless up 11.8% from the 2.103Mt delivered in the same month a year ago. Chinese April imports of unwrought copper (including cathodes, anode and blister, alloy ingot and semi-manufactures) were 438kt, down 7.6% from the 474kt imported a month earlier, but again up 7.5% from the 408kt shipped a year ago. After making assumptions on the other copper-containing goods that China imported in April, Project Blue can reveal the following summary. 

Chinese April imports of all copper-containing raw materials and intermediate products preliminarily reached 1.265Mt in copper content terms. Although this fell 1.9% from the 1.289Mt in March, it was significantly 15.3% higher than the 1.097Mt imported a year ago. For the first four months of 2024, total Chinese imports in copper content terms reached 4.998Mt, up 9.0% from 4.586Mt a year earlier. We conclude that the industry will be moderately encouraged by this market signal, and this will lend further short-term support for copper prices in the current rally.

And in other news…

Further sanctions on Russia. The LME and COMEX are no longer accepting deliveries of Russian-origin cathodes into their warehouses as of Late-April. Existing Russian stocks of cathodes already in the system were exempted to limit the risk to market stability.

Chilean exports of copper concentrate leapt by 29% yoy in Q1 2024 to 3.164Mt verses 2.457Mt a year ago. 66% of the shipments were destined for China, and a further 15% went to Japan. Exports of refined metal in Q1 2024 fell by 4% yoy to 485kt from 506kt in the prior year period. 41% of the metal was for delivery to Chinese customers, and a further 18% to US consumers.