The copper price exchanged on the London Metal Exchange suffered over the week as the prospects of the world economy have darkened.
This turbulence zone is due to the downward revision of growth prospects in the Euro area and the Chinese’s data on exports, which shows a decline. The equation is complicated for Beijing, which is still in the midst of a trade war with Washington.
In dollars, Chinese exports fell by 20.7% over one year in February, while they had increased the previous month announced the customs administration. The imports also continued to fall, dropping by 5.2% which was stronger that January.
It is important to remain that the metal market is particularly vulnerable to these figures, as China is the world’s largest importer of raw materials.
Indian Copper Smelter
Vedanta Ltd. (Mumbay based company) was hardly impacted when an indian court refused to authorised the resumption of the company copper’s smelter with a capacity of 400’000 metric tons a year which reprensent 40% of the country capacity. Indian imports of refined copper jumped, even though the country was already a net importer of refined copper.
This decision also impacted the copper price in London which started to increase. The demand rise and put pressure on the supply side.
On the other side, imports on concentrate copper slump as the country has no capacity to refine it. That would mark the lowest imports in the last 13 years.
Price
Price: USD$/Tonne
The chart below shows the copper price evolution for 1 month (Feb – March). We can notice a huge increase from mid-February to the 1st of March. The increase is probably due to the low stocks and important Chinese demand. LME warehouses reached 139,500 tonnes, close to the 10-year low of 122,500 tonnes in December 2018.Nevertheless, from the beginning of march, there is a small decrease due to some rising inventories and drop (-0.5%) in copper premium grade-a (Shanghai). The stock in LME warehouses rose to 120 075 tonnes from 116 872 (lowest since 2008). In term of supply, the market seems to be undersupplied. The existing mines are already operating at full capacity and therefore cannot at the moment respond to tighter markets.
Forward curves
The forward curve below shows the state of the market today. We can notice a small backwardation from March to April 2019. It means that there is an undersupply situation (Demand > Supply). The market is relatively a bullish (strong) market. However, from April to May 2019, there is a kind of “incertainty”. Finaly from May 2019, the situation is changing for a contango.
Recommandation for the future
Investors that want to profit from the move in copper prices should buy long-dated copper futures contracts as we are heading to a contango situation around May 2019.
Sources
https://www.lme.com/en-GB/Metals/Non-ferrous/Copper#tabIndex=2
http://marketqview.com/forwardcurvechart.php?ID=18&TYPE=Price