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By mid-March, copper prices had reached their highest since April 2023. Prices had previously bottomed out in early February, but strong upward momentum has since broken past all-time highs in a long-term sideways trend. Prices recorded a moderate decline of 1.74% month-on-month throughout February, but in the first two weeks of March it rose 4.12%.
as a whole, Copper Monthly Metals Index (MMI) It remained flat from February to March, with a slight decline of 0.55%.
Copper ore shortage forces smelter operations to shut down
A long-awaited supply crunch is starting to materialize in the copper market, and Chinese smelters are starting to sound the alarm regarding ore supplies. Much of this is due to soaring processing fees and refining fees. Currently it is trending towards zerocontinues to force domestic smelters to cut production. Miners pay processing and refining fees to smelters to process their raw materials. Higher processing fees indicate a higher supply of ore, while lower fees indicate a tighter market.
Part of the decline is due to overcapacity at Chinese smelters.back in September In 2023, the China Nonferrous Metal Industry Association warned of the risks of an overextended sector. In recent years, the amount of copper smelted has increased significantly in anticipation of an increase in global copper demand.
Still, China’s steel and aluminum sectors can continue operating even if world markets are forced to scrap metal. However, due to raw material tightness within the copper market, smelters are struggling to maintain production levels despite increasing demand for copper.
By early March, It was a trigger Up to 19 companies have agreed to cuts by suspending maintenance, lowering production rates and delaying new business.
Plunging LME stocks raise concerns about copper supply
While it is certainly part of the problem, China’s smelter overcapacity is not the only reason for the current market conditions. The mining sector has been plagued by protests, closures and declining ore grades, as well as facing significant production constraints in recent years.
For example, Peru’s Las Bambas mine, which accounts for about 2% of the world’s copper supplies, faced multiple setbacks due to community blockades. Although it is still in operation, it is possible that expansion It has already drawn the ire of local organizations. This could spark new protests and affect the mine’s output.
Meanwhile, First Quantum’s Cobre Panama mine remains closed. The mine is estimated to account for about 1% of global copper production, and its government-led shutdown in the wake of environmental protests came as a surprise to the market.
Supply disruptions from mines such as Las Bambas and Cobre Panama have left China’s smelters in need of raw materials, threatening the world’s supply of copper ingots. Since the end of last year, LME copper inventories have been on the decline. Although far from the 2023 lows, the trend is still downward. Inventory levels also do not boast a significant correlation with prices, which may further exacerbate concerns about growing supply shortages expected in the coming years, especially given rising demand.
US dollar index will remain flat for a long time
The US dollar index will continue to be the driving force behind the bull market as copper prices seek new peaks. Rising inflation during February threw cold water on hopes that the Fed was nearing a turnaround. The CPI rose to 3.2% in February from 3.1% in January, according to Commerce Department data.
While the market awaits comments from the Fed after its late March meeting, February CPI data suggests inflation remains sticky. As the CPI moves further away from the Fed’s 2% target rate, markets have adjusted to expectations that the rate cut will be delayed again. C.M.E. fed watch Within a month, expectations for a March rate cut had fallen from 10% on February 14th to just 1% on March 14th, according to the tool. Expectations for a May rate cut appear similarly low, at just 4.2%. However, the probability increases to 60.1% in June.
Source: MetalMiner insightchart & correlation analysis tools
Still, a lot could change in the coming months to change interest rate traders’ expectations, and their bets won’t affect when the Fed actually moves interest rates. But the conclusion is clear. Interest rates are likely to remain unchanged for the time being.
As always, the U.S. dollar index follows instructions from the Fed. For example, the trend has remained flat in recent months, meaning there is no change in the impact on reverse traded commodity prices such as copper. While this may not be enough to prevent copper prices from rising further, it seems likely to limit the rise until the Fed is satisfied with the state of inflation.
nicole bastin
