How much further do copper prices have to fall? It’s a question challenging producers, consumers and analysts alike.
In the face of weakening demand from China, prices have slid for much of this year and if Chinese demand, alone, was the sole driver there would be little prospect of ANY support to the price in the short- to medium-term.
Import Growth
Chinese copper import growth came in at a weak 2.4% year-on-year in March. The speed of credit approval from banks has slowed, fabricators are not running at full production, and traders are still waiting to book long-term supply contracts while stocks of copper in the country’s port warehouses have also failed to fall, suggesting weak demand, according to an FT article.
Meanwhile, as much as a quarter of major copper mines are running in the red, according to analysis carried out by GFMS and reported by Reuters. The report is said to have looked at results from 26 companies comprising around two-thirds of global output.
Normally, when a significant part of the supply chain hits negative numbers supply is shuttered and eventually prices rise as a result, but miners have been chasing the market down seeking to reduce costs for the last year or more.
Smaller Miners Squeezed
Several smaller miners in Chile are apparently bailing out, looking to sell their assets. Major miners are in the process of cutting costs, in the final three months of last year the industry’s total costs on average fell 6% to $4,426 metric ton as falling oil and other inputs benefited miners, the paper said.
As participants gather for the annual Copper jamboree (otherwise known as the World Copper Conference in Santiago, Chile) later this week, it is doom and gloom among producers, especially in Chile which is home to a third of the world’s production.
If miners can cut costs, they can continue to produce even as the price falls. If they cannot, supply restrictions may arrest further falls. One analyst at the conference is quoted as saying there will be a modest surplus this year and the FT quotes another party saying “I think we haven’t seen the worst yet (in price falls) — there’s more supply of metal coming in the second half.”