FOCUS: China’s virus lockdown puts copper sellers, smelters in logistical bind
The outbreak of a coronavirus has led to the prolonged closure of Chinese businesses, triggering delays in logistical operations with copper market participants looking to ship cathodes and concentrates into the country.
Traders and producers with shipments set to arrive in China in the first two weeks of February reported potential delays as well as difficulty in getting guarantees that letters of credit (LCs) would be opened in time for swift unloading at destination ports.
Investors’ fears over a lack of transportation and therefore copper consumption have been evident in copper’s diving futures price; with a close of $5,701 per tonne on Tuesday January 28, the London Metal Exchange’s three-month copper price is down by 10.1% since its January 16 peak of $6,343 per tonne and is trading at a four-month low.
But those transportation worries, as well as the continued closure of businesses after Chinese national holiday, have also caused logistical problems for those shipping copper to China, which accounts for over 50% of the world’s consumption.
Logistical delays in copper imports
“We have to apply to extend the demurrage period for the cathode cargos arriving at Shanghai,” a copper trader source told Fastmarkets. Demurrage charges herein refer to the fees paid to the ship owner for its delayed loading or unloading.
Every year around 70% of China’s refined copper imports enter the country through the Port of Shanghai, which is also the world’s busiest port, according to Shanghai customs.
Any disruption, even just a day or two, at the Port of Shanghai could cause a ripple effect across the entire copper industry in China.
“Traders are going to suffer big time here,” a copper raw materials trader said.
"[The extended holiday period is] tricky for short voyage shipments where you don’t have LCs open and have no storage options at destination ports,” he added.
Suppliers of seaborne copper to China generally ship on a cif Shanghai basis and finance the cargoes until they reach the destination port, requiring LCs or bank guarantees to be opened and presented before discharge.
“If documents are not presented, you are taking exposure,” the raw materials trader said.
Fastmarkets assessed the copper grade A cathode premium, cif Shanghai at $37-52 per tonne on Tuesday January 28, with trading activity remaining low through this month. The premium had been assessed as high as $70-83 per tonne over October 10-23, 2019.
Shanghai port service to resume on February 3, concerns dismissed
To contain the spread of coronavirus, the first working day after Lunar New Year holidays, originally Friday January 31, was postponed by Chinese officials until Monday February 3.
The Shanghai municipal government then went a step further, ordering employees in the city to not return to work before Sunday February 9.
But Fastmarkets understands that the ports service agency in Shanghai will return to work on February 3 with the rest of the country, easing concerns over a prolonged shutdown at the key port.
“Our vessels for post-New Year delivery are still coming in,” a Shanghai-based cathode trader said.
Yet the logistical issues revolving around personnel returning to work on time continue to loom large, as public transport in a dozen major Chinese cities has been suspended, preventing millions of people from traveling.
Smelters counting personnel trapped in quarantined Chinese cities
Several senior officials at state-owned smelters in China told Fastmarkets they have been ordered to conduct a survey among their employees, to see whether any of them have been infected or have come into contact with infected individuals during their vacations for Lunar New Year.
“The government officials are very nervous about virus control now. Theoretically workers should start working on Feb 3, but I am not sure if it is practical. Many Chinese cities are now quarantined so our workers might not be able to come back to work on time. We have to evaluate whether there is enough manpower,” a manager at a major Chinese smelter said.
Daye to resume operations on February 3
Daye Nonferrous, which has capacity for 600,000 tonnes of refined copper per year, is expected to resume operations on February 3 despite the city in which it is based still being under quarantine, Fastmarkets understands.
The smelter is based in Huangshi, which borders the city of Wuhan, where the coronavirus outbreak is reported to have begun. Both cities are located in central China’s Hubei province.
Partly owned by Hubei’s provincial government, the smelter should resume operations on February 3 and has not received any word from officials regarding a potential delay to the restart, a source with knowledge of the matter said.
While Daye is known to be an active buyer of copper concentrates in the spot market, the impact of logistical constraints on concentrates deliveries to the smelter has been limited, the source added.
Other major smelter plants in China, home to half of the world’s copper smelting capacity, will likely resume operations - albeit at lower utilization rates - after the Lunar New Year holiday period.
“You can’t just turn off a smelter like a kitchen light,” a fourth trader said.
The effect of the coronavirus on the spot copper concentrates market is yet to be seen, according to sources.
Fastmarkets copper concentrates cif Asia Pacific treatment charges/ refining charges (TC/RC) index stood at $55.60 per tonne / 5.56 cents per lb on January 24, edging down from $56.20 / 5.62 cents a week earlier.