The Aurubis Copper essentials report for the year end is that “in retrospect, 2015 will be considered a year that can be safely forgotten when it comes to copper, though copper is not alone in this regard. The entire raw material sector was under pressure, the large mining groups experienced significant share price drops and many institutional investors withdrew from this asset category. According to a Financial Times report, RBC Capital Markets determined that investors had invested $219.5 billion in the commodity sector in late October after a record high of more than $400 billion. Other funds remained, however. Supposedly, extensive short sales, especially by Chinese hedge funds, were behind the price decrease. To think about the situation another way, the dramatic decline in share prices on the Shanghai Stock Exchange led in large part to these circumstances. The Shanghai Composite Index fell from its high of 5,166 on June 12 to 2,927 on August 26.

“China continued to be at the centre of market developments anyway. A decisive factor in this case was declining economic growth and, accordingly, the country’s lower copper demand. The ICSG calculated a demand increase of just 0.5 % for the period from January to September. At 3.3 Mt, Chinese imports of refined copper from January to November were 0.6 % below the prior-year value. The lower demand for copper volumes for financing purposes likely contributed to this as well.

“According to the ICSG, the global copper balance in the period from January to September indicates a production surplus of 35,000 t, or a production deficit of 60,000 t when taking the inventory changes in the Chinese bonded warehouses into consideration. In the same period of the previous year, the deficit was still 452,000 t and 482,000 t, respectively.

“Many aspects are vague for 2016 at the moment. The decisive point is whether the mood regarding commodities and copper will shift. Although some macroeconomic data in China are currently encouraging, it is still much too early for any insights about the effect of the economic stimulus measures. With regards to the scheduled production shortages, it remains to be seen whether and how they will be carried out and whether they will be sufficient to compensate for the expected demand weakness to any large extent. The SHFE and the China Securities Regulatory Commission (CSRC) are very sensitized to the short-selling activities of hedge funds and high-frequency traders due to this year’s events and at the prompting of Chinese smelters. Additional investigations and regulatory measures can be expected. It is unclear how the large mining groups, which are under strong pressure to act due to the low raw material prices, will behave. According to market reports, stronger cost reductions are anticipated at the mines over production cuts. In North America, it remains to be seen whether the economic recovery progresses and how the Fed will react to this in its interest rate policy. In this respect, the development of the US dollar must also be considered. Stronger influences from physical transactions are expected only after the Chinese New Year festivities on February 8, 2016. At that point, it will likely be interesting to see how the cathode premiums in spot business develop. Some consumers have reduced their annual volumes and now have to be more active in daily business.

Price trend

The copper price didn’t reflect a clear trend in the first half of December. No dramatic price changes are expected for the rest of the year, either. The settlement prices ranged between $4,525/t (December 3) and $4,667/t (December 11).  Nothing can be drawn from the spot/forward price structure, either. After an initial minimal backwardation (spot price > forward price), there was recently an equally minimal contango (spot price < forward price). The average copper price for 2015 will be somewhat over $5,500/t (settlement). Copper has therefore lost an average of about 20 % of its value compared to the previous year.

Copper raw materials

On the international copper concentrate market, the view in December is focused first and foremost on the first report of a 2016 contract between the Chilean mining company Antofagasta and the largest Chinese copper smelter, Jiangxi Copper. Both agreed on a treatment and refining charge (TC/RC) that is 9 % below the agreement between Jiangxi Copper and Freeport-McMoRan for 2015. At that time, the agreement was $107/t and $1.07/lb. The results of this remain to be seen. However, it seems that only a contract between Freeport-McMoRan and a larger smelter has enough significance to be accepted as a benchmark.
In line with expectations, the situation on the European copper scrap markets didn’t change in December. With the copper price’s sideways tendency and the end of the year approaching, activities have continued to be restrained.
Production
As reported in the media, there was supposedly a meeting of the nine leading Chinese copper smelters during the third weekend of December. There is now a consensus in the industry and among investors that the plans to cut production by 350,000 t that were announced in November could be followed by additional cuts. This depends on the future price trend and the profitability of the Chinese smelters. According to one of the managers, a decision was made not to produce with losses and thus to be guided by the economic situation in the production level. If the plans to cut production are executed, the Chinese market would lose around 30,000 t of copper output monthly.
According to a report from Indonesia’s PT Smelting, the cathode output at the Gresik location in 2015 was only half of the prior-year output of 300,000 t.

Inventories
The copper inventories at the three metal exchanges, LME, Comex and SHFE, were at 467,000 t in mid-December (December 16). They have therefore decreased by about 30,000 t since early December and by 137,000 t since this year’s high of 604,000 t in early April. At the LME, which has an inventory of roughly 232,000 t, a total of 23,000 t are registered for delivery (cancelled warrants). While the inventory reduction continued at the metal exchanges, there is still some leeway until the inventory of 313,000 t from the beginning of the year is reached. There was supposedly an inventory build-up in the Shanghai bonded warehouse, from 400,000 t to 430,000 t.

Product markets

There were no far-reaching changes on the European markets for copper products compared to November. The already low level of activity is increasingly coming to a halt due to the holiday season and year-end.

Looking back to the third quarter of 2015, global output of continuous cast copper wire rod registered a slight increase of 0.9 % compared to the previous year, according to CRU. While output in China and the US improved, Europe maintained its already good level. In other countries and regions, such as Brazil, Africa and the Middle East, there was a downward trend, however. The situation in China was mixed, with state-driven growth in the cable and wire sector and weaker demand in the automotive and air conditioning industries.