*Copper inventories in China fell last week for the first time in months
*LME cash copper’s discount to the three-month contract fell to $4.75 a ton
Copper was trending lower again on Friday, a day after staging a spectacular comeback from levels last seen during the global financial crisis more than a decade ago. The Dr. Copper, viewed as a bellwether for the global economy, fell 11% on the last week and touched its lowest since Jan. 2016 on Thursday at $4,371 a ton. Copper spreads have tightened, which is usually an indicator of plentiful supply. LME cash copper’s discount to the three-month contract fell to $4.75 a ton, its weakest since May 2019.
According to investment bank BMO Capital Markets, the price is at a level to drive adjustment, though further falls in the near term cannot be precluded. The global economy is already in a recession as the hit to economic activity from the coronavirus pandemic has become more widespread. If this is a prolonged downturn, metals demand could be hit quite hard.
Steel and copper inventories in China fell last week for the first time in months, exchange and consultancy data showed, as downstream metal consumers severely hit by the coronavirus come closer to restoring normal operations. Inventories of copper in warehouses tracked by the Shanghai Futures Exchange fell 0.7% from last week's near four-year high to 377,247 tonnes, the first dip since Jan. 10. Medium-to-large sized firms that have resumed production are mainly back to pre-epidemic levels, industry official said.
Chinese production of copper cathode reached some 1.5 million ton over January-February, representing a small increase of 2.8% on year, as against the 10.2% on-year increase in 2019 full year output, according to the latest data released by China’s National Bureau of Statistics (NBS). Mysteel Global noted that we couldn’t feel any interruption to operations in January but last month when the country was battling against the COVID-19 virus, the delays we saw.
Anglo American on Friday said it would reschedule work at mines in countries such as Chile to help to contain the spread of the coronavirus, while Glencore said it would review its Zambia copper operations. Antofagasta PLC said it would put parts of its Los Pelambres expansion project on care and maintenance as the Chilean miner reduced the number of staff to reduce risk of coronavirus infection. Freeport-McMoRan said it is suspending operations at its 350,000 per year Cerro Verde mine in Peru for at least 15 days.
The reduction in workforce will be for at least 15 days and reviewed periodically, with a consequential delay expected in the completion of the project. Antofagasta said, adding that the full impact of the delay is still to be estimated. Hong Kong-listed MMG said that operations at its Las Bambas mine, with expected production in the 360000 ton range for this year had been reduced temporarily after Peru declared a state of emergency.
The world’s no 2 copper producers, Chile’s state-owned Codelco, said it planned to reduce its operations but sales, shipments of copper are not yet hit by coronavirus. Escondida is the largest copper mine in the world by a wide measure and was projected to produce some 1.2 million ton this year, BHP said.
(Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.) Date: 23-3-2020