Increasing demand is also putting a lot of pressure on the copper exchange, as it is for many other markets. This is the cause of a number of different aspects of the current geopolitical situation and different markets, which we will examine in the following article.
Despite the fact that there are barely any new mines, the demand for copper – and nickel – is forecast to rise after the energy transition. As the automobile industry scrambles to secure its supply of critical metals – which are required for electric vehicles – a large amount of the demand is absorbed by the automobile industry. As an example, Vale signed an offtake agreement with Tesla to supply them with nickel this year, and it is currently in talks with several other automobile manufacturers, including Volkswagen. Despite having faced difficulties in output this year as a result of a labor dispute and a fire at one of Vale’s copper mines, the company is expected to recover this year.
Let’s look at the values:
During the period of January to August of 2022, the global copper market recorded a deficit of 283,000 mt, a change from a deficit of 657,000 mt in 2021. As of August 2022, LME – London Metal Exchange – stocks were 48,000 mt higher than they were in December 2021.
A total of 14.27 million tons of copper cathode were produced between January and August 2022, an increase of 1.7% compared to 2021. Globally, copper cathode production was 16.4 million tons, up 1.3%. Chinese and Indian mines contributed 303,000 tons to this increase, but demand was 17.07 million tons during the same period.
During the period January to August 2022, copper cathode production worldwide increased by 1.3%, with a significant increase of 251,000 mt in China and 52,000 mt in India, respectively. In January to August 2022, global demand was 17.07 million mt, a 4.3% increase compared to the total recorded in January to August 2021. Chinese apparent demand during the same period was 9.44 million mt, an increase of 5.2% over 2021. A total of 651,100 metric tons of copper cathode was produced in the month of August, which is 7,400 metric tons higher than a similar time period in 2021. August’s metal balances show production at 2,07 million metric tons and demand at 2,24 million metric tons.
The stockpiles
As a result, the global copper stockpile has declined to critically low levels, meaning that the current copper market inventory can only meet the global consumption needs for about 4.9 days and will reach 2.7 days by the end of the year. While copper stockpiles are being reduced, demand is increasing, and the price is also falling. As of now, the price is 30% lower than it was in March – $7,400 a tonne. Due to the limited nature of inventories, a sudden spike in prices could occur, which could prompt traders to try to secure supplies. As well as the recession, Europe’s situation is similar to Asia’s, but for different primary reasons. It is driven primarily by the transition to renewable energy, which has been accelerated by the Russian gas crisis. Copper supplies have been struggling for years, and this process has been ongoing for electric cars as well, but not at the same pace.
As a result of the Chinese property crisis, experts believe construction will slow down even further. This could help with the lack of copper in stockpiles and subsequently lower global copper demand as a lot of Copper is used within construction for things such as wiring and pipe work. That being said next year, the supply could potentially increase in Latin America and Asia, leading to a surplus of 600,00 tonnes.
It is essential to maintain a steady and satisfactory supply of copper since it is crucial to most of our modern technologies. It is expected that inventory growth will outpace the pickup in industrial production, however, the buildup could become a problem. China’s demand for base metals could increase, but inventories will still be able to absorb it. Meanwhile, the rest of the global economy is likely to slow down, lowering demand. According to some experts, that would be the ideal scenario.
References
- HOOK L; DEMPSEY H; CAMPBELL P. (2022); “Vale seeks to sell metals stake as battery demand soars” l https://www.ft.com/content/9dcc68b8-7ca2-4283-9fee-736a857e1b53?shareType=nongift
- 文华财经 (2022): “WBMS : Global Copper Market Saw a Supply Deficit of 657,000 mt from January to August 2022” l https://news.metal.com/newscontent/101976676/WBMS:-Global-Copper-Market-Saw-a-Supply-Deficit-of-657000-mt-from-January-to-August-2022/
- DEPMSEY H; TANI S; SHEPPARD D. (2022): “Trafigura warns the world is running low on copper” l https://www.ft.com/content/80fdd315-2db4-46fa-a76e-6d3d4eff83e5?shareType=nongift
- WESTWATER T. (2022): “Copper Rebound Chances Fade on Weak Demand and Rising Supply” l https://www.dailyfx.com/news/copper-rebound-chances-fade-on-weak-demand-and-rising-supply-20220929.html
- DESAI P. (2022): “Grim demand outlook pushes copper prices to 2-month low” l https://www.reuters.com/markets/europe/london-copper-price-hits-two-month-low-strong-dollar-2022-09-26/
- NG A. (2022): “ Copper prices are signaling that investors are bearish on the economy, strategist says” l https://www.cnbc.com/2022/07/14/copper-prices-are-signaling-investors-are-negative-on-the-economy-anz.html#:~:text=Metals-,Copper%20prices%20are%20signaling%20that%20investors,on%20the%20economy%2C%20strategist%20says&text=Copper%20is%20seen%20as%20a,its%20use%20in%20many%20sectors.
- ELS F. (2022): “Two charts show copper price drop may have been overdone” l https://www.mining.com/two-charts-show-copper-price-drop-may-have-been-overdone/
