November 19, 2019 / 1:30 AM / a month ago

Copper Key: Unlocking the trends ahead of Asia Copper Week

SHANGHAI (Reuters) - Asia Copper Week, one of the biggest industry gatherings in the region, starts Monday with miners, traders, warehouse operators, analysts and executives from the world’s biggest copper companies set to descend on Shanghai.

The week will be full of contract meetings, presentations and networking events where the industry will discuss deals and the outlook for copper demand amid the ongoing U.S.-China trade war.

Here are the key themes to look out for:

MATING SEASON

Asia Copper Week typically marks the peak of the annual mating season between miners and smelters to set a benchmark for next year’s treatment and refining charges (TC/RCs) for copper concentrate.

Used as a reference in long-term contracts for most global concentrate deals, the 2020 TC benchmark is seen falling for the fifth straight year to $60-$70 a tonne, from $80.80 currently, amid tight ore supplies and rising Chinese smelting capacity.

A benchmark deal is not guaranteed, however, as smelters could walk away from offers deemed too low. In 2017, the two sides were too far apart to reach a settlement in Shanghai. Spot TC/RC rates in China fell to $52 a tonne in September, the lowest since November 2012.

Graphic: Bench press: Copper TC/RC benchmark heads for 5th straight decline, here

In July, China’s top two smelters surprised the market by signing a supply deal for the first half of 2020 with Chilean miner Antofagasta much earlier than expected, suggesting some key industry participants may be looking to break from the annual TC/RC benchmark model.

“Chinese smelters will struggle with lower processing fees as the current spot TC implies most smelters are not breaking even,” said analyst Helen Lau of Argonaut Securities.

CHINA DEMAND

The outlook for China’s copper demand will be a prominent topic.

The U.S.-China trade conflict has dragged benchmark copper on the London Metal Exchange down by about 20% since June 2018, when the United States finalised a list of Chinese goods that would be subject to tariffs, escalating the trade war. But the contract has rebounded 3.6% since Oct. 4 and hit a three-month high this month as the tone of trade talks seemed to brighten.

Graphic: Copper prices have slumped 14% in the past two years, here

Record Chinese refined copper output in October is also supportive, and is a “prescient indicator of demand recovery in China,” said Guy Wolf, global head of market analytics at broker Marex Spectron.

China consumes about half the world’s refined copper in its vast manufacturing and construction sectors, and while many traders believe weak macroeconomic data suggests a subdued copper market next year, others see signs of improving metal demand, especially from construction.

China’s concentrate imports during the first 10 months of 2019 are 8.3% higher than the year ago period, suggesting Chinese smelters are “running like Rolls-Royces”, said an executive at a miner that supplies copper concentrate to China.

Graphic: Material change: China imports more copper ore, less metal, here

A session dedicated to the outlook for smelters and featuring representatives from Jiangxi Copper Co and Daye Nonferrous Metals Group Holdings takes place on Wednesday.

CHILEAN SUPPLY

The unclear supply outlook will also be a major focus.

The world’s biggest copper producer Chile has had a month of nationwide violent civil protests that have raised concerns about potential supply disruptions.

Chilean mining minister Baldo Prokurica and the chief executive of top copper producing company Codelco, Octavio Araneda, were scheduled to speak at the conference on Wednesday, but no longer appear on a revised agenda.

A 33% decline in LME copper stocks since late August has also contributed to an emerging sense of tightness, and may provide miners with some leverage in TC/RC talks, traders said.

The TC/RC benchmark rises when copper concentrate supply is abundant and falls when the market tightens.

TRADE DEALS & SCRAP SUPPLIES

Other hot topics set for discussion include whether the U.S. and China will ever emerge from their trade dispute, and how China’s increasingly strict stance on waste imports is transforming the country’s scrap industry.

The outlook for electric vehicle sales - a large copper consumer - will also be addressed and follows a rare contraction in China’s overall and new energy car sales in recent months.

Reporting by Tom Daly and Shivani Singh in Shanghai; Additional reporting by Fabian Cambero in Santiago; Writing by Mai Nguyen in Singapore; Editing by Christian Schmollinger

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