Via Metal Miner
Overall, the Copper Monthly Metals Index (MMI) fell 4.56% from July to August.
Aside from a short-lived rise at the start of July, copper prices today remain in a downtrend, with prices falling 5.76% from the previous month. Prices did manage to rebound in August, although not enough to signal a trend reversal. (Follow copper price trends on a weekly basis in MetalMiner’s newsletter)
World’s Largest Copper Mine Ends Strike
A strike at the world’s largest copper mine helped buoy current copper prices, putting the downtrend on pause during the first weeks of August. Pay disputes triggered a union strike at BHP’s Escondida mine in Chile, which began on August 13. By August 18, however, the Union agreed to a new three-year deal, which put an end to protests. Escondita accounts for roughly 5% of global copper.
Disruptions have become a fixture within the mining sector in recent years. Beyond Chile, copper mines in Peru, including the world’s second-largest copper mine, Las Bambas, faced repeated blockades as communities pressured mining companies for greater support. Meanwhile, First Quantnum’s Cobre Panama copper mine remains idled following community backlash.
On an individual level, mine disruptions do not have a meaningful impact on copper prices today, as demand at the refined level plays a much larger role. However, as a long-term copper supply deficit looms, such outages have greater potential to spook market participants waiting for supply tightness to materialize.
Copper Prices Today, Chinese Steel Price Correlation Erodes
Had Chinese copper consumption proven itself stronger last quarter, copper prices may have managed to avoid the downside retracement witnessed since late May. Instead, limited consumer demand allowed for a significant rebuild in SHFE inventory levels, which ultimately offset relative tightness in the U.S.
Much of China’s gloom relates to its property sector, a bubble that has been deflating for years. Stimulus measures announced thus far have proven unable to halt declining home prices, a situation worsened by China’s aging population. As a result, key industries like steel have started to buckle amid calls that China already reached peak steel demand.
Source: MetalMiner Insights, Chart & Correlation Analysis Tool
Until the second half of 2022, LME copper and Chinese HRC prices held a strong, almost 91% correlation. That correlation has subsequently broken down. Between July 2022 and the present, the correlation inverted to -46%, with the two price points often, although not reliably, moving in opposite directions.
Calls for Chinese Stimulus Continue
Much of China’s support for its economic woes came in the form of stimulus for its renewable sectors. While the production of EVs and solar helped compensate for the lack of copper demand from China’s deflating property sector, those sectors failed to keep up as it relates to steel. As a result, copper prices today continue to outperform Chinese HRC prices, which remain in a tailspin.
There are no guarantees that Chinese copper demand will continue on pace, as both of those sectors risk bubbles. EV and solar overcapacity could derail China’s plan to use the sectors to lift the country out of its current slump, especially as Western nations increase protectionism efforts.
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China’s Stimulus Gambit: Will Rate Cuts Ignite Growth or Fan the Flames of Yuan Deflation
Meanwhile, China has largely held back from announcing more significant stimulus efforts. Many expected the conclusion of China’s Third Plenum, an economic meeting held every five years, would lead to a wave of government support measures. However, they were ultimately disappointed by inconsequential rate cuts. As the U.S. appears on the verge of its own rate cuts, stimulus expectations have returned, with some believing those cuts will allow China to spend more without risking greater deflation of the yuan.
There remains no guarantee that will happen or whether it will prove effective at boosting consumer demand if it does. China can’t build its way out of its current challenges. After all, who would they be building for? It makes sense why China continues to lean so heavily on the export market to maintain growth. However, as other countries put up roadblocks on Chinese materials and products, China’s demand for metals like copper could face challenges should consumer demand not improve.
By Nichole Bastin
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