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Copper Prices Dip As The Energy Crunch Sparks Demand Doubts

  • Copper is facing a chaotic mix of both supply shortages and crashing demand, leaving the industry in a state of uncertainty. 
  • China’s power crisis is weighing on copper production and manufacturing, with many provinces limiting energy consumption.
  • The future of the construction sector in China, a large consumer of copper, remains unknown.
Copper Prices Dip As The Energy Crunch Sparks Demand Doubts

The Copper Monthly Metals Index (MMI) fell 1.7%, as the copper demand picture could be set to weaken and the LME three-month and China primary cash prices fell month over month.

The Fed effect and Congress delays

As the Federal Reserve prepares to scale down its pandemic strategy, copper prices dropped. The Fed reported it would hike rates and pare back the asset purchase program (i.e., quantitative easing).

This news benefited the U.S. dollar, which increased over the past month. This is particularly important to copper. The U.S. dollar and commodities have historically moved in a perfect inverse relationship.

Moreover, Congress’ decisions — or lack of them — could cause market turmoil and impact copper prices. The bipartisan infrastructure deal remains delayed in the House of Representatives.  Congress has not taken action on increasing the debt ceiling, adding to the potential market turmoil, though it does appear that Republicans have agreed to a short-term debt ceiling cover into December.

China looming over prices

Meanwhile, the second-largest economy in the world continues to show signs of volatility.

China is the biggest consumer and producer of refined copper. Its latest issue involves a power crisis that has impacted both copper production and also manufacturing. Both have experienced restrictions.

Most Chinese energy comes from coal. With supply falling below required levels, it has consequently experienced all-time high price levels. Several provinces have seen limited power consumption. As a result, manufacturers have shut off power and halted production of goods. Some expect these shutdowns to impact the availability of consumer goods in the United States.

The results can be seen in the August and September Caixin Indexes, which were 49.2 and 50.0, respectively. Values under 50 represent contraction in factory activity.

Moreover, concerns over Chinese real estate developer Evergrande’s financial status continue to weigh heavily on demand. The future of the construction sector in China, a large consumer of copper, remains unknown.

TCs go up

The slowdown in copper demand has helped smelters.

??China’s copper smelters increased their copper concentrates treatment and refining charges (TC/RCs) for the fourth quarter at $70/t and $0.07/lb, Argus reported. This increase comes after TC/RCs remained low for most of the year.

The increase means that copper concentrate appears largely available, potentially as a consequence of lower demand and after the wage contracts in Chile have been settled.

This increase also comes at a time when smelters are being asked to reduce production. The 300,000 metric tons per year Nanguo smelter and the 100,00 metric ton per year Guorun smelter suspended operations in mid-and late-July, respectively, and have remained so until this month as opposed to facing merely an initial 55-day suspension.

Actual metals prices and trends

The LME three-month copper price decreased by 2.3% month-over-month to $9,101 per metric ton as of Oct. 1.

Chinese primary cash copper decreased by 0.9% to $10,678 per metric ton. Similarly, Chinese copper scrap went up by less than 0.1% to $9,846 per metric ton. 

US copper producer grades 110 and 122 dropped 3.3% to $4.9 per pound. Producer grade 102 decreased by 3.2% to $5.1 per pound.

By AG Metal Miner

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