copper concentrate markets surprise

While copper futures trade in largely directionless, trading in a tight range there has been considerable action in the concentrate markets.

Reuters reports that the 10-member China Smelters Purchase Team (CSPT) has set treatment and refining charges at $55.00 per tonne and 5.5 cents per lb respectively for third-quarter deliveries. This is a significant move down from $92 and 9.2 cents in Q1 2019. This suggests considerable tightness on the copper concentrate supply side and could spell some grief and likely closures for higher cost smelters.

According to the International Copper Study Group (ICSG)  the issues with the supply side are the dearth of new mine production combined with lower head grades in Chile and markedly lower output at Grasberg where the operation is in the process of transition from open pit to underground.

Mine Production

ICSG in its latest study concludes that world mine production declined by about 1% in the first four month of 2019, with concentrate production declining by 0.5% and solvent extraction-electrowinning (SXEW) by 2.5%:ICSG in its latest study concludes that:

  • What little growth there was during the period was offset by declines in Chile and Indonesia;
  • Chilean production declined by 3.2% due to lower head grades;
  • Indonesian concentrate production declined by a massive 50% due to a transition from open pit to underground operations are the Freeport McMoran operations in Irian Jaya;
  • While DRC and Zambian production staged significant 11% production growth in 2018, production in the reporting period only managed 2.8%;
  • Production in Peru, Australia, China and Mongolia increased in response to improved grades and recoveries;
  • Mine production increased by 3% in Africa, 2% in North America and 6% in Oceania but declined by 4% in Asia , 1.5% in South America and 3% in europe.

Refined Production

ICSG in its latest study concludes that world refined production remained unchanged in the first four month of 2019 with primary production (electrolytic and electrowinning) declining by 0.2% and secondary production (from scrap) increasing by 0.5%. The decline in world production was due to:

  • A 33% decrease in Chilean electrolytic refined output due to temporary smelter shutdowns whilst undergoing upgrades to comply with new environmental regulations;
  • A decline of 33% in India’s production that was negatively impacted by the shutdown of Vedanta’s Tuticorin smelter in April 2018;
  • A 23% decrease in Zambian refined output due to power supply interruptions, smelter outages and the introduction on 1st January 2019 of a 5% custom duty on copper concentrate imports;
  • Reduced output in major producing countries including Germany, Japan, Peru and the United States due to smelter maintenance shutdowns.

Refined copper declines during the period were offset by growth in Chinese output and increases in Australia, Brazil, Iran and Poland . These declines during the period were offset by growth in Chinese output and increases in production due to recovery from production constraints in 2018.

ICSG concludes that:

  • World refined copper balance in the first 4 months of 2019 saw a 150,000 deficit;
  • China’s bonded stocks are thought to have increased by 140,000 tonnes, compared with the same period in 2018;
  • Copper stocks held at LME, COMEX and SHFE totalled 417,600 tonnes an increase of 19% over the prior period
  • The average LME price was down 2.7% from the may average

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