The events on the copper market since April 15 have led to a great deal of confusion among observers. The de-crease in copper prices on the LME to lows of most recently under US$ 6,900/t surprised those returning from CESCO week in Chile, the spring meeting of the copper industry. Nobody expected a nearly 9 % price decrease like this within such a short time. So what caused the sudden weakness?

It started on Friday, April 12 on the gold market. The gold price fell 15 % in two days, sparked by gold sales by the Central Bank of Cyprus. Ultimately, it wasn’t physical sales that intensified the price decrease but futures transactions with options, certificates and exchange traded funds. Chart-oriented investors in particular must have been on the sales side because nothing changed in the fundamental conditions. The spark in the gold sector jumped to the entire raw materials sector and the stock markets. In the case of copper, the downward shift reached chart points that triggered computer-aided sell orders. In this so-called algo trading (algorithmic trad-ing), automatic purchases or sales are automatically carried out within seconds when certain prices are reached. The market then pushes forward explanations in an effort to clarify events. For copper, it was yet again economic concerns that mainly arose from the release of Chinese growth figures for the first quarter of 2013. Growth declined from 7.9 % in the previous quarter to 7.7 %. This is by no means a slump, but the German newspaper Handelsblatt, for example, nevertheless ran the headline “Is China heading for a crash?” a few days later.

China’s debt situation has to be viewed critically, of course, but looking to the Chinese copper market, this is irrelevant right now. Cathode demand there has risen noticeably and has become even stronger owing to the price decrease. As Reuters reports, Chinese buyers have supposedly paid cathode premiums US$ 115 to US$ 135/t above the LME cash quotation for volumes in the Shanghai bonded warehouse. Since deliveries from Asian LME warehouses, e.g. in South Korea, require even higher premium payments, inventories in Chinese bonded warehouses in particular are falling. While they were estimated at 900,000 t at the end of February, they decreased to about 850,000 t by mid-March and are now supposedly below 600,000 t in Shanghai. At the same time, copper volumes stored at the Shanghai Futures Exchange decreased by 24,000 t in April for a current level of 223,663 t. Processors in China do not have many inventories and will have to stock up with cathodes if business picks up: about 85 % of Chinese cable producers say that March orders were higher and therefore have higher copper demand.

Some developments on the production side also tend to speak for higher copper prices. In India, copper production in the Tuticorin smelter ceased at the end of March due to environmental reasons, initially until the end of April 2013 (annual output of 300,000 t). In North America, a landslide in the Bingham Canyon Mine has made it so that 100,000 t less refined copper will be produced in its downstream smelter/refinery complex in 2013. In addition, extensive maintenance standstills are planned at copper smelters around the globe, which will also lower volumes. Overall, the market surplus of refined copper that is anticipated worldwide in 2013 will be much lower than expected. Continued low copper prices are therefore unlikely.

On the free spot market for concentrates, the conse-quences of the landslide in the Bingham Mine are lim-ited, as the mine produced for its own smelter. The closing of the Indian smelter freed up additional volumes for the market. Upcoming maintenance standstills at smelters will also reduce demand. Availability is therefore still good, unlike the European copper scrap market. Traders are much less willing to sell due to the decrease in the copper price, so availability on the spot market is lower.
On the product markets, demand in Northern Europe is positive following the long winter period and is better than in Southern Europe. In the meantime, expectations in many sales areas are more optimistic than at the beginning of the year.