CHARTS: The coming critical minerals trade war is BRICS short of a load
"While a large number of countries around the world continue to talk about securing raw material supply, China is actually doing something about it."
The price of copper has slid from its record high after China’s real estate turmoil increased storage of the wiring and plumbing metal.
A pound of copper was at $4.376 on Thursday, down 11% from $4.925 on May 20, according to Mining.com. Stocks of the metal in Shanghai Futures Exchange warehouses reached the highest level in four years at 330,000 tonnes this month, according to Bloomberg figures.
High prices also weakened manufacturing demand and may see China switch out copper for aluminum, which is the theme of the China Nonferrous Metals Industry Association’s annual gathering next month, according to BMO Capital Markets.
“The industry utilisation rate (of copper) remains very low at about 52%, well below year ago levels,” BMO director of commodities research Colin Hamilton wrote in a note on Wednesday. “We expect talk of copper substitution with aluminum to increase given the CNIA conference on ‘saving copper with aluminum’ in early July,” the analyst said the next day.
The CNIA has said substitution could somewhat lower the country’s dependence on copper imports and improve its resource security. China buys the vast majority of its copper, including more than 3 million tonnes a year of cathode, BMO said. Meantime, the country exports about 6 million tonnes a year of semi-finished aluminum such as sheet metal and foil. However, it still imports most of the bauxite used to make aluminum.
With high prices, manufacturers use their stockpiles before buying new metal, especially when demand for copper products has fallen. China’s property market has tumbled over the past few years as companies over-borrowed and went bust. The country’s copper inventories usually accumulate early in the year, then decline as plants ramp up after the Chinese Lunar New Year holiday which falls in the period of Jan. 21 to Feb. 20.
With the copper glut in China, imports of cathodes from the London Metals Exchange were selling this week at a $14 per tonne discount, BMO reported, a rare situation.
“With Chinese smelters still delivering cathode into bonded warehouses owing to the open export arbitrage, it still feels too early to say we are at the bottom of the current copper price cycle,” Hamilton wrote on Thursday.
Still, copper supplies outside of China remain low, according to traders. Inventories for The Commodity Exchange (COMEX) in New York are surprisingly low even after the price surge in May required traders to close positions where they bet the price to fall, called a short squeeze. The market shows backwardation, when spot prices are higher than forecast trades, BMO said.
“This points to the challenges in obtaining copper suitable to deliver to COMEX warehouses, with much of the volume available globally either of Chinese or Russian origin,” Hamilton said. “We still see signs of fundamental weakness, but if legacy short positions remain the potential for another squeeze is high, which is the key risk in play for further copper downside at the present time.”
Elsewhere, predictions of a copper shortage didn’t develop even after Panama shut First Quantum Minerals’ (TSX: FM) Cobre Panama mine in December and traders considered a raft of new smelters due to start output in China, Indonesia, India and the Democratic Republic of Congo within two years.
China recycled more copper than usual and the country’s smelters didn’t reduce production beyond annual maintenance even though officials were considering it and satellite intelligence spotted a slowdown in March.
