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After a period of considerable strength that pushed copper prices to near one-year highs, the commodity is once again facing the risk of dipping below the crucial $4.00 per pound mark ($8,820 per tonne), according to the closing figures from the first quarter in New York. The London Metal Exchange (LME) saw similar trajectories with prices peaking at $9,164.50 on March 18, only to fall afterward.
The recent rally in copper prices was fueled by Chinese smelters’ bold commitments to reduce their output by 5%-10%. This decision was a response to the combination of a tighter-than-anticipated concentrate supply and a lingering overcapacity issue—stemming from years of aggressive expansion that has elevated China’s share in the global refining market to over 50%.
One of the most glaring signs of Chinese refiners’ urgent need for raw materials was BHP’s reported sale of concentrate from Escondida, the world’s preeminent copper mine. The transaction involved spot treatment charges as low as $3 per tonne and refining charges of 0.3 cents a pound to a Chinese smelter, marking a significant decline from benchmark annual contracts and representing a decade low for such charges.
Moreover, the competitive landscape for raw materials is expected to intensify further in 2024, as India emerges as a significant competitor. Recently, Adani commenced operations of the first unit of its $1.2 billion Kutch Copper smelter, poised to become the world’s largest single-location copper smelter, with an initial capacity of 500kt per year.
Despite these developments, the future direction of copper prices remains uncertain, as discussions among the Copper Smelters Purchasing Team in Shanghai continue. Concurrently, Jiangxi Copper, China’s leading producer, announced plans to boost copper production by 11% to 2.32m tonnes this year, despite the overarching theme of capacity discipline among producers.
Adding to the complex dynamics is Indonesia’s upcoming copper ore export ban, which could critically affect global supply lines. Meanwhile, both inventory levels on the Shanghai Futures Exchange and mining disruptions signal potential shifts in the copper market. Analysts from investment firms like ING and ANZ have slightly divergent views on copper’s short to medium-term outlook, reflecting the market’s current volatility and the broad array of factors influencing copper prices globally.
In sum, as the copper market navigates through these turbulent times, impacted by a blend of regulatory changes, market dynamics, and geopolitical tensions, the long-term demand outlook remains robustly optimistic, underscored by a universal trend of escalating prices and deficits.
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