Trouble in the copper sector

There’s trouble in the copper sector as copper concentrate spot processing fees slump to the lowest level since 2013. Extended shut-downs at the world’s biggest copper mines, one in Chile and the other in Indonesia, are taking their toll, and experts predict processing prices will drop even further. Smelters in India and Japan are probably going to be hit hardest and earliest. They traditionally carry low levels of inventory, and are heavily invested in supplies from the two disrupted mines.

Industrial action and export bans take their toll

The strike at BHP Billiton’s Escondida in Chile is now in its fourth week, and concentrate output there has stopped. Together with Grasberg in Indonesia, another of the world’s biggest copper mines, it accounts for almost 9% of global mined copper. Production from both mines was supposed to improve this year after a disappointing 2016, but a combination of long term industrial action at Escondida and an export ban affecting Grasberg since January this year have taken their toll. Now the Cerro Verde mine in Peru is also facing industrial action.

Plummeting smelting fees

Many smelters are suffering stock shortages, including smelters in China, India and Japan, are having to deal with fast-reducing rowing margins as their fees drop. All this means 2017’s refined copper output is under threat, which in turn is forcing the copper market into deficit. At a time when global manufacturing demand is on the cusp of a revival, copper prices are likely to rise… eventually. Luckily smelters have some room for manoeuvre. Chinese smelters tend to break even at around $55 per tonne, ten dollars less in Japan.

The big Indian smelter Vedanta Resources says it isn’t facing an impact from all this disruption yet, and has taken the threat into account. India’s other major smelter Hindalco Industries hasn’t yet made their own situation clear. Japan’s biggest smelter Pacific Copper is busy securing supplies, and Sumitomo Metal Mining said it isn’t being affected yet because it isn’t wholly dependent on Escondida and Grasberg. But it’s only a matter of time before the entire industry begins to suffer. .

At the same time the price for treatment and refining of the metal has plummeted to $70 or so per tonne and 7 cents a pound, the weakest since early spring 2013 and a dramatic fall from 2017’s term rates of $92.50 per tonne.

Are copper price hikes on the cards?

Some experts are baffled as to why the situation hasn’t already resulted in a sharp price rise. They believe it might be down to diverting some shipments and bringing others forward, as well as the fact that concentrate supplies are still looking relatively healthy. The slowdown in supply may ultimately mean refined copper is forced into a deficit through 2017, the first time it’s happened in six years. It may also drive copper prices up to $7,000 or more per tonne this year.

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