September copper futures trading on the Comex market in New York moved higher again on Thursday as the likely impact of new regulations in China spark another round of heavy buying in the US and Shanghai.
On a busy day where more than 3 billion pounds of copper changed hands, the price jumped to $3.048 a pound ($6,720 per tonne), up more than 2% from yesterday’s settlement and the highest in nearly three years. December copper topped $3.07 a pound earlier in the day.
The latest rally was sparked by reports at the end of July that China, responsible for some 46% of global consumption of the metal, is planning to ban the importation of scrap copper by the end of next year. China imported more scrap (1.85m tonnes) than refined copper (1.54m) during the first half of 2017. China-bound cargoes of copper concentrate is expected to match 2016’s 17m tonnes annual total.
With the release of its annual financial results on Tuesday, world number four producer BHP flagged scrap as a crucial factor in the prospects for the copper market:
Turning to the outlook, we expect the copper market to be roughly balanced through to the end of the decade, with solid demand growth met by existing and committed supply. A key uncertainty is the balance between primary mine supply and scrap that will meet the solid growth in demand that we project in the next few years.
A key uncertainty is the balance between primary mine supply and scrap that will meet the solid growth in demand that we project in the next few years
A structural deficit is expected to open in the early 2020s, at which point we see some sustained upside for prices. Grade decline, increased input costs, water constraints and a scarcity of high-quality future development opportunities are expected to require higher prices to attract sufficient investment to balance the market.
Developments in China will be vital. Major themes include the regulatory environment for scrap imports, the scale of investments in scrap processing capability, lifecycles of copper intensive capital stock, and technical standards for aluminium usage in mid-voltage grid applications, in addition to what we see as its likely structurally lower demand for cathode imports going forward.
While the impact of the ban on prices and primary supply demand is uncertain and few details have emerged, large-scale speculators in copper futures such as hedge funds have pushed bullish bets to record highs in recent weeks. LME and Comex managed money investors now hold net long positions worth $21.7 billion at today’s price. On Chinese commodity markets regulators have stepped in to cool speculative demand as base metal prices inside the country rack up double digit percentage gains in a month.
