Global Copper Market
In Q1 2020, the copper price was impacted by three factors. First, there was an obvious drop in copper consumption amid a considerable decline in production and investment activity in China. Secondly, uncertainty reigned regarding the magnitudes of a potential fall in demand for raw materials in this country, in particular, for base metals. As coronavirus-related crisis progressed, these two factors have been aggravated, and their impact stretched far beyond the Chinese boundaries, stepping up pressure on prices. The third factor is the plummeting oil prices on the back of first two factors and a surprising decision of the oil market players to stop acting in a coordinated manner in the OPEC+ deal.
In light of the exceptional character of the current world economic situation it was a daunting challenge for all market actors to determine a fundamental level of prices for copper. A reign of pessimistic estimates resulted in an increase in quoted prices volatility, investors and speculators’ flight to risk-free assets (such as gold, US Treasury securities) and, consequently, in the price fall to 4.371$/t (19.03.2020 / 3-month LME copper forward price). MDD (maximum drawdown) came out at -31% in this period. However, the prices bounced back at once to the levels reached showing much the same trend as the world financial markets.
First news about China resuming its business operations and support measures launched by central banks and governments across the world were followed by price recovery. Since then, the estimates of fundamental copper price level have become less pessimistic. The current prices are narrowing, which is indicative of existing uncertainty on prospect estimates, whereas a few technical indicators of growing optimism are seen increasingly often. Market expectations will be clearer as there will be some relevant statistics showing the extent of the downturn in developed countries in Q2 2020 and a recovery rate of business operations
in all key regions. It is expected that more distinct price trends will be shaped up by the end of Q2 2020. Only then will the market be able to impartially assess the potential copper demand in this year.
One more factor to be critical in the behavior of metal prices is the fluctuation of copper mining cost. Since 2016, operational mining costs have been demonstrating a consistent upward trend. Quarterly CAGR 90th percentile total cash costs between 2016 and 2019 added up to 2.5%. In 2020, as oil prices are collapsing (twofold) and plans of miners to enhance their business operations for maintaining profitability are upset, mining costs will tend to reduce. For example, Freeport McMoran announced its plans to cut its production costs by 18% in 2020. Apart from enhancement, the company mentions a 50% diesel fuel price slash as a key factor of a reduction in production costs. This will raise an extra potential for pushing down the stock copper price by lowering production costs of marginal producers.
Only a shrinking metal supply is able to offset the negative impact of curtailed demand and reduced production costs on copper prices. Such shrinkage may be caused by a plummeting operational load of production facilities or their complete shutdown, as well as production upgrade (decrease in output/conservation of unproductive assets) and cuts to investment programmes of mining companies.
According to S&P Global Market Intelligence, measures to battle against COVID-19 resulted in winding down production at 51 copper mining projects. Total potential output losses stand at 528 kt (3% of production capacity in 2019). 78% of the mentioned amount falls on Chile and Peru.
Production improvements, as in case of Freeport McMoran, imply employees, being dismissed, and suspending project expansions as well as decline in copper output by nearly 91 kt. Such measures are vital for companies in order to invest the released operating cash flow into the projects, approaching completion. In this case, the company facilitates the startup of Indonesian underground mine Grasberg.
CAPEX of substantially all miners is under review. Following the results of Q1, the companies report a decline in investments in new projects. As a result, according to Refinitiv, copper mining in the next 5 years will be, on average, 2.2% lower than expected. This is equivalent to a loss of 3 Mt of copper up to 2025.
Considering these factors, a positive outlook for copper price may be expected in the short and long terms. In particular, starting from Q3, quoted prices are expected to take a stable upward slope. Having said that, the analysts’ survey carried out by Fastmarket MB indicates that the bulk of analytical results exceed the consensus forecast between 2021 and 2024. This shows that the price is likely to rapidly grow by the end of 2020.
Russian Copper Market
Following the results of Q1 2020, the apparent copper consumption in Russia has contracted by 10% YoY. The apparent consumption is a balance sheet ratio, which includes copper product exports in calculations. Thus, this decline cannot be deemed as a pronounced change in actual copper demand in the domestic market. In particular, putting strains on this ratio has eventuated in a surge in copper wire rod export by 41% YoY.
Copper output in Russia slumped by -1% YoY, which was primarily caused by decreasing Norilsk Nickel’s output (-8% YoY).
This decline in production is associated with the planned decrease in copper concentrate processing purchased from “Rostekh” and with lowering copper concentration in these raw materials.
Worth a special mention is Bystrinsky GOK that continued its planned ramp-up of copper concentrate production up to 15 kt, which was 51% higher than in the same period of the previous year. This growth became possible due to augmented productivity of the concentrator’s grinding and milling circuit.
 Asset price fall from maximum to minimum for a certain period. Risk index in portfolio investments. In this case, the price peak was reached on 16.01.2020 on the back of signing “phase one” trade deal between China and the USA.
 Oil and other energy utilities define 20% of copper mining cost.
 The data source for Norilsky Nickel is the company’s press-release, the evaluation of reasons for changes and production output of RMC is made based on in-house calculations of Analytical Department.