July 13 (Metal Bulletin) - US copper mine production dropped to
23% in 2000 compared with 1999, according to the Copper
Development Assn.
Production fell to 3.25bn lb from last year's all-time high of
4.22bn, the association said. Electrowon copper production was
down 3.4% at 1.49bn lb, while smelter production at 2.2bn lb
represented a decline of 23%. Total production of refined
copper at 3.98bn lb was 20.8% behind the previous year.
Consumption of refined copper at 6.49bn lb was down 0.4%. The
direct consumption of scrap was up 0.8% at 2.42bn lb. Still,
purchases of copper and copper alloy mill products reached a
record high of 9.55bn lb, a 4.2% increase from the revised 1999
level of 9.17bn lb, it said.
According to the preliminary figures for the first four months
of 2001 released this week by the International Copper Study
Group, refined copper production is outpacing growth in mine
output.
Compared to the same period of 2000, world mine output rose by
2.8%, but primary refined production increased by 5.1% pointing
to a draw down of concentrate stocks. Secondary refined
production fell by 1.7%.
On the consumption side, world refined copper usage for January
to April 2001 fell by 3.4% from the same period last year.
Accord to the ICSG, only the strength of Chinese usage
prevented a worse decline. Apparent copper usage in China
increased by 15% or 85,000 tonnes in the first third of this
year, compared to 2000.
The overall effect of the decline in consumption and rise in
production was a calculated surplus of 158,000 tonnes for
January-April 2001. Last year, a deficit of 211,000 tonnes was
recorded for the same period.
Meanwhile, the LME copper market looked like it was beginning
to emerge from the "squeeze" on nearby dates at the beginning
of this week, with some physical market players hoping that
this would encourage consumer buying to return.
Short covering finally came into the market in afternoon trade
on July 10, taking three-months copper back from lows at around
$1,558 per tonne into the high $1,570s, before the market
slipped slightly, closing at $1,573 per tonne. Copper continued
to trade close to $1,575 the following morning.
The July-August spread moved close to a fully financed contango
on July 10, which has prompted short covering, attributed by
broker ScotiaMocatta to buying from East Asia and locals
covering. The backwardation had been on a couple of days
between July 18 and 20, but had shrunk from its peak at $20
last week to $9 per tonne at the start of this week, and was
trading between $5 and $7 on July 10. "Because these dates are
so close they will continue to be squeezed now," a broker
noted, while another said the situation may not be clear until
just before the third Wednesday.
The tightness on these dates had nothing to do with a physical
short, according to market players, but was due to two large
and opposite technical positions, which were held by major
trading houses. The LME warrant banding report which came out
on July 9, accounting for the previous two days' trade, showed
a long position holding between 30% and 40% of LME warrants. A
trader described the back as an "aberration".
Some traders said this week that metal appears to have been
delivered in large quantities to LME warehouses over the past
nine days on behalf of the short, in particular to the USA and
Europe, with the short position holder responsible for the
50,000 tonnes stock rise seen last week. LME stocks this week
rose by another 26,340 tonnes including total deliveries of
14,840-tonne of copper cathodes reported for July 10, with
8,500 tonnes delivered in Los Angeles, 2,550 tonnes in Long
Beach and 1,750 tonnes in Baltimore.
"The short has been delivering metal as part of a show of
strength against the long," one trader said. He added: "It is
to make sure that if [the short] cannot borrow then it has its
own metal to deliver against its short position, even though
this has been premium material that it would much rather sell
at a better premium to customers."
Although some believed that the tightness on July dates eased
after the two parties were said to have reached an off-market
agreement earlier this week, traders said the LME appears to
have done nothing to force the long to lend and the short to
borrow. A physical trader said an attempted squeeze in the
"dead" July-August period was bound to fail. Others believe
the positions will be rolled and the back could appear again
later this year. They also indicated that the copper price
could test the critical $1,560 per tonne level once again.
The backwardation in the LME copper market may not be enough to
prompt buying in the European physical market, where very
little business has been reported this week. The weakness of
the Euro against the US dollar has also discouraged European
buyers from the market, which is US$-denominated, although
there are some suggestions that the unfavourable exchange rate
may be passed on to consumers in the prices of fabricated
products.
A European physical trader said: "June has been one of the
worst months for the last ten years, and I don't expect to see
any recovery until next year."
Summer closures and cable mills running below capacity mean
there is little physical demand for metal in Europe, while
Japanese and other Asian markets are said to also be quiet.
Premiums for standard grade cathode are quoted at zero to $5
per tonne in the Black Sea ports and around $10 in Rotterdam,
down from $20 at the start of the second quarter although a
producer quoted a range of $10-15 per tonne over LME cash.
Grade A premiums are quoted at $25-30 cif Rotterdam.
The physical copper market in China is also seeing mixed
signals this week, as opinion among industry sources is divided
over whether the arbitrage opportunities stirred up by low LME
prices have created renewed buying activity.
"There was a slight revival in trading last week but the
copper backwardation on the LME is creating some uncertainty in
the Chinese market as well," one trader said, adding that she
expects the market to remain flat for the coming month.
Another market player said that the renewed buying interest in
the market is unlikely to last. "The fundamentals are still
weak," he noted.
Shanghai in-warehouse premiums are largely unchanged at $50-55
per tonne over LME for spot metal.
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