Copper Market Crunch Brews as US and China Compete for Metal

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Or sign-in if you have an account.13r6[[ufpt5ytwo}{1p){cyr_media_dl_1.png Bloomberg(Bloomberg) — The copper market is tightening fast, with a surge in shipments to the US and rising orders in China setting the stage for a rally that could take global benchmark prices to all-time highs. 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This time around, the upswing has more to do with trade dislocations caused by the gravitational pull of the world’s two largest economies. While an unprecedented hoarding of copper on US shores has sped up in anticipation of a tariff decision, traders have been stepping up shipments to China to alleviate tightness there. Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe flows to China come on top of an arbitrage trade that’s encouraging cargoes to the US and drove futures on New York’s Comex to a record on Wednesday. That has been going on since last year but has accelerated to the fastest pace in at least 12 years as traders await a White House decision on whether to extend duties on semi-finished copper products to raw metal. There’s been no indication when or whether US President Donald Trump plans to announce a decision on tariffs, which have been a core policy tool in his effort to shore up industrial supply chains. The president will be holding a meeting with mining executives on Friday in Washington, in a bid to showcase efforts to help spur critical minerals development and processing, with plans to unveil a handful of a deals and memoranda of understanding.Meanwhile, almost every day over the past two weeks, batches of 4,000 to 6,000 tons of copper have been removed from the London Metal Exchange’s network of warehouses, quickening a steady decline that has shrunk the stockpiles backing the world’s most liquid copper contracts by more than 40% since May. A lot of that metal, particularly from facilities in Taiwan and South Korea, has been making its way to China, according to traders, warehouse operators and fabricators familiar with the flows. Outflows have also been seen in LME warehouses in the US as traders have taken advantage of higher Comex prices.Mercuria Energy Group, Trafigura Group, Vitol Group and Hartree Partners LP have all been withdrawing copper from LME warehouses in recent weeks, according to people familiar with the matter, who asked not to be named discussing private information. Representatives from Mercuria, Trafigura, Vitol and Hartree declined to comment.The rush is because smelters in China — which is at the same time the world’s top copper producer and consumer — are producing less due to tight feedstock supplies, and customers are having to rely more on imports while Shanghai Futures Exchange inventories are also dwindling. This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.In London, the typical red flags of a squeeze are mounting quickly. The premium on nearby contracts over three-month futures hit $153.75 a ton Thursday, surpassing the levels reached at the end of January. That price structure, known as backwardation, signals short-term tightness.“Even if demand is not at the moment doing amazingly, you can have a bit of a step change where the constraint on the supply is causing this draw on inventory,” Citigroup Inc. metals strategist Tom Mulqueen said. “There’s not a huge amount of inventory there outside of the US generally, and in that kind of environment, we’re seeing that a little bit reflected in the pricing.” Mulqueen expects that ongoing withdrawals from LME warehouses in the coming months could help fuel a rally toward $15,000 a ton.It will all depend largely on Trump. If he decides not to impose a levy on refined copper, the pull from the US would dissipate, making more metal available for China. If he maintains the current uncertainty, traders are predicting higher prices and a squeeze. And if he actually announces tariffs, a sharp price surge is almost certain, as traders would likely ramp up shipments to the US before the levies come in.To be sure, copper consumers in China tend to refrain from buying when prices rise too much, and this week’s rally may already be giving some of them pause, which could limit the momentum for imports. But the constraints on Chinese copper production could keep the market tight nonetheless. Chinese smelters reduced copper production more than expected in July, according to a report from Shanghai Metals Market. They have struggled with an increase in the cost of ores and a decline in grades, or the content of metal they contain. At the same time, they are confronting a lack of copper scrap, another important feedstock. Secondary copper accounts for one-quarter of China’s refined copper production. The domestic recycling industry has been hugely disrupted by stricter scrutiny on invoicing in recent months. Scrap collectors, which typically run small and informal businesses, often run out of invoicing quotas and cannot complete sales. Over the past 20 years, copper scrap has provided elasticity to restore market balance. In response to lower mine supply, or growing demand from end-users, prices usually rise to attract more recovery of copper scrap, Citi’s Mulqueen said. “You lose some of that elasticity because of these additional headwinds,” he said. —With assistance from Jack Farchy and Thomas Biesheuvel.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. 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