Copper is heading for another year of volatile prices, according to industry analysts Wood Mackenzie.
But, in the absence of a major economic downturn, the general outlook is positive.
What are the biggest trends to watch in the global copper market in 2020? Wood Mackenzie Principal Analyst Eleni Joannides sees five key themes:
- Copper prices – fundamentals vs sentiment
- Policies and politics that will drive copper demand
- The global scrap dynamics will shift
- Lower treatment and refining charges could push some smelters below break-even
- Mine supply looks set to return to growth
“During 2019, copper prices were largely determined by US-China trade-related news rather than copper’s own fundamentals. It was not until the US-China Phase 1 trade deal was agreed in December that there was a shift in sentiment,” Ms Joannides said.
“As we look to 2020, the risk is that wider factors will once again influence price. The geopolitical issues that have surfaced since the start of the year could derail the rally that emerged in December 2019. On the other hand, further progress in resolving trade disputes will likely encourage a faster than anticipated recovery in demand and underpin prices.
“This year, we are forecasting that positive mine supply growth of 1.3 per cent – after disruptions – will be offset by a recovery in demand.
“The resulting draw down in total cathode stocks by year-end should be positive for prices.”
A shift in global scrap dynamics could occur in response to changes in Chinese scrap policies, Wood Mackenzie warns.
“The Chinese government recently approved new standards, beginning in July 2020, that will re-categorise some copper scrap as renewable copper material,” Ms Joannides said.
“The new threshold for copper content of imported copper scrap has been set at 97 per cent and 56 per cent for brass scrap.”
This threshold is noticeably above the average copper content for copper and brass scrap imported in 2019.
“In addition to the changes in scrap-related policies in China, rising costs to upgrade scrap ahead of export to China will likely incentivise more secondary consumption capability to be built in scrap generating and/or processing countries,” she said.
“We have already seen early examples of this around the world. It remains to be seen if this will be the start of a trend, which would not only have implications for scrap volumes available for China but also the requirement for concentrate, blister/anode and copper cathode.”
Partly driven by new project delivery, mine supply is expected to return to growth.
Wood Mackenzie’s base case is for mine supply to reach 21Mt in 2020 – after applying a 5 per cent disruption allowance. About 40 per cent of the additional production capability will be a result of a net increase in output at operating mines.
Lower treatment charges (TC) and refining charges (RC) could push some copper smelters below break-even, according to Wood Mackenzie.
“A tight concentrate market in 2019 forced TC/RCs to their lowest level in six years. The 2020 benchmark was set at $62/t & 6.2c/lb – a 23 per cent decrease on the 2019 benchmark and the fifth year of falling treatment charges,” Ms Joannides said.