Aurubis reports in its December Copper Mail “we have arrived at the run-up to Christmas when trade on the metal exchanges declines and physical activities on the international copper markets are reduced. In addition, there are year-end considerations by investors and companies that exercise a special impact on business: open exchange positions are closed to secure profits or inventories relocated to the warehouses of the metal exchanges. On top of that, a generally growing nervousness is present this year, to which above all the bad economic news from Dubai and Greece has contributed. The composure with which these announcements have been absorbed shows however, that the markets are more resistant these days. Even if price volatility on the copper market increases, the fluctuations should not be as great as in the prior year.
“The copper price has been able to maintain its level in a narrow range of around $7,000/t in the last few days, before dropping $125/t all in one day to $6,810/t on December 10. This was caused [mainly] by the squaring of purchasing positions on the metal exchange and the building up of new sales positions. As a consequence, positive copper-relevant economic announcements from China were not given the attention due to them. Chinese construction activities in November rose by 194% compared with the prior-year month and the Chinese government announced it was extending its incentive program to stimulate the economy to take in the automotive and household appliance sectors.
“News on production also aroused little reaction, where the situation differs between smelters and mines. After the production spurt in China on the smelter side, outdated capacities are now being closed down. According to the Association of the Chinese Metal Industry, the intention is to discontinue the operation of copper production capacities for 300,000 t. In Canada, Xstrata will permanently close down its smelter activities in the Kidd Creek complex from May 2010. The background is the high costs and very low treatment and refining charges on the market. The smelter that procures concentrates from its own and other mines has a capacity of 150,000 t of blister copper and 145,000 t of copper cathodes. It intends keeping its own ore mining and concentrate production. Such a strategy again highlights the upstream mining sector which is targeting expansion.
“This drives on investment projects further, such as Chile’s Coldelco, which has an annual capital expenditure budget of $2 billion, which is mainly planned for completing expansion plans in the copper mines. The mines also try to do everything possible to avoid production breakdowns and losses – in view of copper prices at about $7,000/t, an understandable strategy. The average production costs of the mines are about [$1-1.5/lb] $2,200 – 3,300/t and thus the income from the copper price is about 200% or more above that. This is probably also the driving force behind the inclination to speed up negotiations in wage discussions, such as recently seen at Chuquicamata. In October 2009 BHP Billiton presented such a good wage offer in collective bargaining at the Escondida mine that there was no strike in the end at all.
“This indicates that mining output will increase in 2010, but refined copper could again be in short supply if demand picks up. Little will however happen in the coming weeks, since the year does not begin in the Chinese calendar until February 14. Astrologically it will be the year of the metal and the tiger and there are some indications that this metal tiger will not be without teeth.
“Negotiations about TC/RCs in the annual concentrate supply agreements for 2010 are taking their time. It is believed that settlements with Chinese smelters have not yet been concluded. Concentrate smelters demand minimum TC/RCs of $50-60/t and $0.05-6/lb, where the mines are only offering TC/RCs of just over $40/t and $0.04/lb. While copper concentrates are still in short supply in the spot business, the European copper scrap supply is still at a good level, due to higher availability, the trade’s increased willingness to dispose of scrap and the absence of Chinese buying activities. The copper product business is continuing its recovery trend, although it varies by regions and product sectors. The public holidays will however result in a temporary special situation with curbed demand.”