Copper deficit drives prices but cap may be near

A sustained deficit in the global copper market due to stagnant copper supply is helping to prop up futures prices. But global premiums remain stubbornly docile, foreshadowing a cap on copper prices in the near term.

The global copper market deficit stood at 175,000 tonnes in the first 10 months of 2017, the International Copper Study Group (ICSG) said on Monday January 22.

Prices jump

The tightness in supply led the most-actively traded March Comex copper contract to reach $3.2185 per lb in intraday trading on Monday - down from the nearly four-year high of $3.3085 per lb on December 28 but still high - before settling at $3.1985 per lb.

On the London Metal Exchange, the three-month copper contract closed the official session at $7,090 per tonne ($3.22 per lb) on Monday, slipping to $7,068 per tonne at the 5pm close London time.

Premium market fails to see boost

In China, specifically, premiums for both warrants and bills of lading fell further last week due to slow demand, and further weakness is widely expected in the near term.

US copper premiums were fixed in a range of 5.25-5.75 cents per lb delivered duty paid to the US Midwest, according to American Metal Market’s latest assessment on January 16. This is not the first time that a futures price move failed to correspond to a change in premiums, although the futures market is now starting to reflect the ongoing issues facing premiums.

The latest deficit increased from a 143,000-tonne deficit in the first 10 months of 2016 but was virtually unchanged from the 180,000-tonne shortfall recorded in the first nine months of last year, according to ICSG data. The Portugal-based group previously forecast the full-year deficit at 150,000 tonnes for 2017 and 105,000 tonnes this year.

The ICSG estimated that world mine production declined 2.6% year on year during the first 10 months of last year, with concentrate production falling by 2.2% and that via solvent extraction-electrowinning tumbling by 4.3%.

Europe was the only region to post an increase in mine production during the period, rising by 2% from the same year-earlier period.

On the refined side, production was essentially unchanged year on year through October, with an 8% decline in Chile partially offset by increases of 5% and 7% in China and India respectively.

“On a regional basis, refined output is estimated to have increased in Asia [3%] and in Europe [3.5%] while declining in Africa [2%], in the Americas [8%] and in Oceania [10%],” the ICSG said.

In the concentrates market, Chile - the world’s largest producer - posted a 2% decline due to a combination of the Escondida strike and lower output from Codelco’s mines. Indonesia and the United States both saw double-digit declines, at 15% and 12% respectively, with the latter attributed to lower ore grades, reduced mining rates and unfavorable weather conditions at the start of last year.

Metal Bulletin’s copper concentrate index was at $81 per tonne/8.1 cents per lb on January 15, up fractionally from $79.80/7.98 cents previously.

Spot copper treatment and refining charges edged higher in early January in response to news that operations at Glencore’s Pasar copper smelter and refinery in the Philippines were suspended due to a technical failure, with cargoes from the facilities being diverted into the spot market.

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