Copper has had an interesting quarter—while looking at its start and end points for Q2, the red metal has failed to regain lost ground from the very start of 2018, but during the quarter copper reached four-year highs.
Analysts are predicting that copper will fall in value through to the third quarter of the year, saying that “trade tension flare-ups“ could make value increase while lower demand weighs on sentiment overall.
Read on for more on what copper did in Q2, with a look at big news in supply and demand and a glimpse at what the future could hold.
Copper price update: Q2 overview
Like in the first three months of the year, copper trended downward over Q2, but not as dramatically overall, with the metal falling only 1.63 percent.
Copper started the quarter at US$6.755 per tonne and ended it at US$6,645— a rather bland looking journey, but a closer look reveals the metal touched a four-year high of US$7,261.5 on June 8.
The quarterly high came amidst a week between June 6 and June 15, where the base metal stayed above US$7,000 a tonne—a situation that ended as quickly as it came about as you can see in the London Metal Exchange chart below, which shows copper’s lowest point was April 4, when it touched US$6,624.
Chart via LME
The high plateau began with news of strike fears at Escondida, the world’s largest copper mine. Over the following days Ivanhoe Mines (TSX:IVN) and CITIC (HKEX:0267) became new best friends, Vedanta declared it wanted to double copper production in Africa and a number of mines in South America came closer to fruition. At the end of the quarter, Glencore (LSE:GLEN) blew US$3 billion on making Dan Gertler go away to give it some clear air to take on all its other problems.
Since copper rapidly fell back below US$7,000, it continued a downward slide over the remainder of the quarter like its other base metals cousins, and overall for the whole of 2018 it’s lost 7.45 percent of its value after starting the year at US$7,180.5.
Copper price update: Supply dynamics
Fans of stability will be big fans of 2018. GFMS Thomson Reuters base metals analyst Karen Norton told the Investing News Network (INN) that few of the dramas of 2017 have carried into 2018.
“In comparison with last year, supply news has been relatively uneventful,” said Norton.
“Developments at the Escondida mine in Chile — operated by BHP (ASX:BHP, NYSE:BLT, LSE:BBL)— have been closely monitored, with latest reports from the two camps evidently quelling fears of a repeat of last year’s 44-day strike.
“This has played some role in the retreat in copper prices from multi-year highs, although the up and down moves were largely CTA (Commodity Trading Advisor) driven against the backdrop of global trade war fears.”
She said that there “are clear signs that the copper mine project pipeline, which had virtually ground to a halt, has gathered momentum in recent months, with the revival of mines that had been firmly on the backburner.”
In this quarter, news from Anglo American (LSE:AAL) about its Quellaveco mine, and Southern Copper’s (NYSE:SCCO) Michiquillay, have brought welcome news on the supply front.
Norton said that while supply growth will be slower in the short term, long term prospects are promising.
“Our (GFMS Thomson Reuters) ten-year supply view indicates that there will be a period of slow supply growth between 2020 and 2022, but, even discounting low and medium probability projects, momentum (bearing in mind the economic cycle) is expected to pick up again with a return to long term, or close to long term, average growth rates in the ensuing years.
“Given CITIC’s recent investment in Ivanhoe Mines we feel the large Kamoa project in the Democratic Republic of the Congo is even more likely to progress and in a timely fashion. China’s need for copper and the country’s relatively long-standing working relationship with the DRC should help the company to navigate changes to the latter country’s changes mining code.”
Analysts at FocusEconomics hold similar views on supply.
“Global supply levels should remain strong as production accelerates in the world’s top producers, especially Chile, conditional on the successful resolution of potential labor disputes,” they said in their June report.
ScotiaBank also pointed to Escondida as a potential cause for turbulence unless negotiations went smoothly.
“While last year’s disruption didn’t seem to contribute much of a boost to the already frothy copper market, physical balances are much tighter today and a similar disruption is likely to have a more pronounced effect on spot markets—copper prices briefly moved into backwardation from the protracted contango experienced by contracts since 2016, signaling just how tight spot markets are today,” ScotiaBank said in its Q3 commodities outlook report.
“Despite recent concerns, we don’t believe that we will see another significant work stoppage at Escondida this year and we anticipate that the union and management will come to an agreement through the summer.”
Norton did point to another big story this quarter, this one in India.
“The closure, supposedly permanent of Vedanta’s Sterlite smelter in India has been significant, not so much to the bottom line of copper supply as excess concentrate will be shipped to China, but more to an uptick in smelter processing charges. However, the ongoing expansion of smelter capacity in China is expected to reverse that trend later this year.”
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