By analyst
By Frik Els
Source: www.tradingfloor.com
Bears in a scrap
The latest rally was sparked by reports at the end of July that China, responsible for some 46% of global consumption of the metal, is planning to ban the importation of scrap copper by the end of next year. China imported more scrap (1.85m tonnes) than refined copper (1.54m) during the first half of 2017. China-bound cargoes of copper concentrate is expected to match 2016’s 17m tonnes annual total.
With the release of its annual financial results last week, world number four producer BHP flagged scrap as a crucial factor in the prospects for the copper market:
Turning to the outlook, we expect the copper market to be roughly balanced through to the end of the decade, with solid demand growth met by existing and committed supply. A key uncertainty is the balance between primary mine supply and scrap that will meet the solid growth in demand that we project in the next few years.
A key uncertainty is the balance between primary mine supply and scrap that will meet the solid growth in demand that we project in the next few years
A structural deficit is expected to open in the early 2020s, at which point we see some sustained upside for prices. Grade decline, increased input costs, water constraints and a scarcity of high-quality future development opportunities are expected to require higher prices to attract sufficient investment to balance the market.Developments in China will be vital. Major themes include the regulatory environment for scrap imports, the scale of investments in scrap processing capability, lifecycles of copper intensive capital stock, and technical standards for aluminium usage in mid-voltage grid applications, in addition to what we see as its likely structurally lower demand for cathode imports going forward.