March witnesses a surge in copper prices as the red metal’s value on exchanges skyrockets past $4 per pound, partly fueled by speculations surrounding China’s potential reduction in smelter output.
Recyclers and traders dealing in copper scrap are navigating a market characterized by escalating prices this month, with concerns over potential supply constraints in primary copper being identified as the primary catalyst.
The Comex exchange in the United States registers a closure at over $4.10 per pound for copper on Friday, March 15, while the London Metal Exchange (LME) reports a value of $4.08 per pound as its three-month closing price as of the previous Friday.
In a mid-March analysis, Andy Home of Reuters attributes last week’s surge in copper’s value to reports indicating that China’s copper smelters have reached an agreement to limit output in response to a significantly tighter-than-anticipated raw materials market.
According to US-based analyst John Gross, as described in his March 15 edition of “The Copper Report,” a consortium of major smelters in China has committed to “control capacity” in what he implies to be a coordinated effort.
However, Gross clarifies that these output reductions are not necessarily linked to the Chinese government’s acknowledgement of industry overcapacity. Instead, he suggests that the arrangement is a response to a shortage of concentrates, which has severely impacted processing fees.
Both analysts highlight that despite this temporary measure, the issue of overcapacity in copper smelting and refinery production in China remains unresolved in the long run. Home notes that there are no set quotas for production cuts among the 19 Chinese copper smelter and refinery operators involved in the mid-March discussions, which Gross refers to as “collusion.”
Gross further explains that China’s copper production from concentrates has surged from 5.52 million metric tons (mmt) in 2013 to 11.83 mmt by 2023, representing a significant 114 percent increase.
Moreover, Gross anticipates additional capacity additions globally, citing Freeport McMoRan’s forthcoming smelter in Indonesia with a capacity of 1.7 mmt and Adani Natural Resources in India starting production at its 500,000-metric-ton-per-year smelter. Similar expansions are expected in the Democratic Republic of Congo and Indonesia.
Despite the potential impact of recycling activities on primary copper prices, the influence remains limited. Data from the International Copper Study Group (ICSG) reveals that in 2023, primary copper production exceeded secondary production by nearly a 5:1 ratio.
Although secondary copper accounted for 16.9 percent of global output in 2023, up slightly from the previous year’s 16.35 percent, it still trailed significantly behind primary copper production.
The surge in exchange-traded copper prices presents opportunities for recyclers to expand profit margins, but it also brings challenges, such as increased freight insurance costs and exposure to price volatility.
While higher scale prices may attract increased inflows of certain copper and brass grades at recycling yards, the demand for shredded copper-bearing grades might not witness a similar uptick due to stagnant or declining scrap iron prices, which significantly influence the purchasing decisions of yards dealing in obsolete vehicles and appliances.
Sources www.reuters.com
