Column: After three years of exports China is now short of lead
The global lead market has bifurcated since the start of June, with Shanghai prices significantly outperforming that of the LME.
Tension has been a feature of the copper market since the middle of last year but, so far, the net result has generally been stalemate and prices have moved sideways, mostly in the US$6,900-7,150/t range, according to a recent study conducted by SNL Metals & Mining.
In the recently-released September issue of SNL Metal & Mining’s Copper Briefing Service, SNL editor Paul Dewison notes that, since November, the market has tended towards backwardation, ie future prices are lower; quite a sharp one nearby and more benign further out.
Dewison writes; “On the one hand we (SNL Metals & Mining) see progressively lower stocks on the exchanges, and now also in merchant bond, making the immediate physical market very tight. On the other hand, we have the spectre of impending surplus, with sharp increases in supply and deep doubts about consumption prospects bringing massing clouds that augur a storm of oversupply and surplus.”
Dewison observes; “On the China demand front, the copper market was spooked in mid-August by very poor loan data, with much lower than expected increases in aggregate financing and in new loans. However, a more enduring problem is a huge ongoing retreat in China’s property sector, with housing starts falling in each of the first six months of 2014. As copper is installed late cycle, much of the impact of this is yet to come.”
Add to this scenario a sharp fall in China’s purchasing-managers index (PMI) late in August, and the picture for Chinese demand does not look that bright at all. In addition, we have a stalled recovery in Europe and far from buoyant forecasts by fabricators in the U.S., despite strong PMI figures.
As for China’s copper production, SNL Metals & Mining estimates that available smelter-refinery capacity in the second half of this year will be much greater than in the first half. Jinchuan alone, with the start up of its 400,000t/y Fangcheng plant in June, and the return of its 350000t/y Gansu plant, out since March, will be a major contributor.
Given new mine supply (Caserones and Sierra Gorda) and the high level of output disruption in the six months to end-June (around 0.5Mt), Dewison believes mine output in the second half is likely to exceed that of the first half by a considerable margin. According to SNL Metals & Mining, all of this adds up to a market moving into surplus.
