Copper Miners Watch
Copper Miners Watch
Shortages? Oversupply? Where to Look to Evaluate the State of the Copper Market
Table of contents:
Jurisdictional Information
Fraser Institute’s Annual Survey of Mining Companies has increasingly been used to evaluate “how mineral endowments and public policy factors such as taxation and regulatory uncertainty affect exploration investment.”
Additional Metrics of Jurisdictional Risk
Corruption Perception Index can help to characterize the operational landscape of mining operations and exploration. High levels of corruption can result in unfair competition in permitting and license approval and may imply the potential for increased operational costs (such as extraordinary payments) and additional legal risks.
Low GDP per capita can highlight economic instability, which may lead to policy alterations that impact business continuity among mining operators. Moreover, socio-economic issues stemming from low GDP per capita might fuel labor strikes and public unrest that can disrupt mining operations.
In countries with high inflation, operational costs may surge due to increased labor and utility expenses. Additional concerns are currency stability and a repatriation of profits (whether via the introduction of additional royalties, taxation, or government ownership). Inflation also introduces a level of unpredictability in prices, which can disrupt financial forecasting and planning.
High rates of unemployment can lead to social tensions and fuel local opposition against mining activity. It can also provoke an upsurge in informal or illegal mining, potentially leading to security issues.
Treatment and Refining Charges (TC/RC)
Inventories at major exchanges
Using them along with China´s PMI is a key indicator also of the short-term demand forecast of EVs, global housing and construction sectors, and electricity.
Here, we can also look at the ratio of “cancelled tonnage” to “Closing Stock,” which is also referred to as the ratio of metal awaiting physical load-out. The cancelled tonnage is defined as the metal that has been taken off warrant but which (at the relevant time) remains on the Warehouse's premises. This information is a useful indicator of consumption trends. A sudden rise in LME canceled tonnage indicates more stocks are expected to be taken out of warehouses.
The “open tonnage” and the “cancelled tonnage” columns are a subset of the “Closing Stock”. The open tonnage represents warrants still tradable, i.e., not canceled. The canceled tonnage is waiting for the owner’s instructions to the warehouse company for removal or possibly re-issue of warrants. These warrants are no longer freely available for trading.
The metal referred to in open and canceled tonnage remains within the warehouse. When a warrant is canceled, the open tonnage is reduced, and the canceled tonnage is increased. There is no overall effect on the closing stock.
When metal from a canceled warrant is returned to the market by the creation of a new warrant, the only effect is on the composition of the closing stock. The impact of such an event is to reduce the canceled tonnage column and increase the open tonnage. There is no effect on the closing stock.
A rise in warehouse inventories and a decline in the canceled tonnage ratio would suggest a negative future trend for prices. In contrast, a fall in inventories and an increase in the canceled tonnage ratio may indicate bullish price pressures.
“Delivered in” metal refers to the quantity of metal for which LME warrants have been issued during the reporting period. It is possible that the metal has arrived at the warehouse previously but has not yet been on warrant.
“Delivered out” shows the amount of metal that has physically been removed from the warehouse. A movement of metal corresponding to 50% of any warrant is considered a full delivery for reporting purposes.
Those in the copper industry may sell LME copper during oversupplied markets and draw on LME copper inventories in the event of a copper shortage. Some market watchers look to rising and falling inventory levels on the LME as an indicator of global supply and demand conditions.
However, it’s important to note that physical delivery is the exception rather than the norm. The most transparent inventory is the London Metal Exchange (LME). Information on LME volumes is readily available. It does give a bit of an indication, but there’s also the COMEX, there’s the Shanghai, there are mine inventories, there’s recycling and then there are all the non-bonded stockpiles as well.
Copper Cathode Premiums
Shanghai Copper cathode premiums
If Shangai Copper cathode premiums are up it is an indicator of improved import profits, which will incentivize import activity. Market participants tried to seize the import opportunity when London Metal Exchange copper prices were falling, which usually means a higher chance of an opening of the arbitrage window between the LME and Shanghai Futures Exchange
Yangshan copper premium is premium paid on top of the benchmark LME copper price for refined copper to be custom cleared and imported into China through Yangshan bonded area in Shanghai.
It is an indicator of the demand/supply balance for physical copper in Yangshan area, reflective of the situation in Shanghai and further in China. It reflects the amount that buyers are willing to pay on top of LME copper price to seize the physical delivery.
Methodology: The data is collected by SMM independently from phone interviews and trade execution, and then calculated systematically. The release frequency is weekly.
The premium for equivalent grade (EQ) copper cathodes in Shanghai was also underpinned by improved arbitrage conditions, with the premium moving higher amid low spot availability.
Anemic demand in Germany would put significant pressure on the spot copper market.
Rotterdam usually serves as a market through which copper is imported into Europe, and due to the weak demand in the continent, Rotterdam premium would be low.
Domestic Production and Trade Data
China Imports: In Table 6, “China's Major Imports by Quantity and Value,” the category “Unwrought Copper and Copper Products” is a proxy for copper scrap. Volumes are x10 = million tons or x10,000 = tons
China Exports, under the “Monthly Bulletin” node, then in Table 13 “Major Export Commodities in Quantity and Value”
Chile Copper Production (in Spanish) monthly and annually, and world data (only annually).
Peru Copper Producion (in Spanish) monthly, and by mine.
US Industrial Production: Mining: Copper, Nickel, Lead, and Zinc Mining
Futures Curve
LME - 3rd Wednesday monthly futures quotes // LME - spot price
Commitment Of Traders Report
CME - COMEX COT (Updated every Tuesday)
Industry Research
Minex Consulting publications dig deep into historical mining dynamics, very well informed, often going into a technical level where your base knowledge is challenged, it is a source to expand mining proficiency.
Reuters: Andy Home, a senior metal analyst with a broad-based understanding of metals’ physical and futures markets. It is also reachable by email.