As the US dollar fell after surging, the spot prices and copper futures prices closed higher in 2023. SHFE copper prices rose by 4.23%, and LME copper prices rose by 2.27%. SMM 1# copper cathode gained 4.6%.
In addition to the foreign exchange market, the U.S. banking crisis, and the economic progress of major economies, frequent disturbances to the supply of ore have become the focus of the market. Changes in copper cathode production and changes in consumption brought about by new energy, home appliances and other fields have had an important impact on the copper market.
SMM summarizes the top ten events that affected the copper market in 2023.
How much impact did the collapse of Silicon Valley Bank have on copper prices?
As the world's largest copper consumer, China's domestic macro policies frequently drove up copper prices in 2023. It is expected that more policies will be released to affect copper price performance in 2024.
In 2023, factors such as the huge shock in the U.S. banking industry caused by the bankruptcy crisis of Silicon Valley Bank at the beginning of the year, the end of the U.S. interest rate hike cycle at the end of the year, and the expectations for an interest rate cut by the Federal Reserve have all become important factors that disturb the performance of copper prices. The European Central Bank has also maintained the pace of raising interest rates and high interest rates in 2023. The Federal Reserve kept interest rates unchanged at its December interest rate meeting, and hinted that there may be three interest rate cuts in 2024. The Fed's dot plot predicts a rate cut of 75 basis points in 2024. Many institutions have also released their own forecasts for the Federal Reserve's interest rates in 2024.
Eurozone CPI remains stubborn, and the European Central Bank may not stop raising interest rates for the time being. On Thursday (December 14) local time, the European Central Bank kept interest rates unchanged as expected, lowered its inflation expectations, and reiterated that it would maintain restrictive interest rates if necessary. This is the second time in a row that the European Central Bank has kept interest rates unchanged. The three key interest rates, the main refinancing rate, the marginal lending rate and the deposit mechanism rate, are 4.50%, 4.75% and 4.00% respectively. Since the end of the negative interest rate policy in July last year, the European Central Bank has raised interest rates 10 times in a row, with a cumulative increase of 450 basis points. The ECB reiterated in its statement that the Governing Council will set interest rates at a sufficiently stringent level for as long as necessary. The bank said inflation had slowed further in recent months but was likely to pick up in the short term. They expect the consumer price index (CPI) to slow to a target level of 2% within two years. At the press conference after the interest rate meeting, European Central Bank President Lagarde once again tried to dampen market hopes for an interest rate cut in the first half of next year. Lagarde said rate cuts were not discussed at all at the monetary policy meeting and warned that policymakers should not let down their guard in fighting inflation.
It is expected that economic recession in Europe and the US may occur at the end of 2023 or around the first quarter of 2024. European inflation may recur in the fourth quarter, growing economic pressure. This will weigh on copper prices.
The cumulative output of copper cathode in 2023 was 11.4401 million mt, the largest annual increase in recent years.
In December 2023, SMM China's copper output was 999,400 mt, an increase of 38,600 mt or 3.86% month-on-month, and a year-on-year increase of 14.87%. The cumulative output from January to December was 11.4401 million mt, a year-on-year increase of 1.158 million mt or 11.26%, and the annual increase was the largest in recent years.
In September, SMM China's copper output was 1.012 million mt, an increase of 23,000 mt or 2.3% month-on-month, and a year-on-year increase of 11.3%.
Copper inventories started to be destocked since March and remained low for a long time in 2023
After the copper inventory in mainstream SMM areas across China reached a high of 329,900 mt on February 20, 2023, the copper inventory started an overall destocking process and returned to below 100,000 mt in mid-June. Copper inventories were at historically low levels for many years.
As the macroeconomy faced downward pressure in 2023, the market generally expected copper consumption to see little growth. SMM finds that inventories of Chinese smelters and consumers were at low levels in 2023, while finished product inventories at Chinese copper consumers were also at low levels after the COVID-19 pandemic. According to SMM data, China's cumulative apparent consumption growth rate of copper cathode from January to October was as high as 6.81%. Such a high apparent consumption and such a low inventory base is believed to have been attributable to the consumption by end-user sectors, in addition to the periodic supply tightness of copper scrap.
As of January 8, 2024, LME lead inventories decreased 4,000 mt from last Friday and stood at 72,900 mt. The inventories across most regions decreased and only inventories in Jiangsu increased. The total inventory dropped by 49,600 mt compared with the same period last year when the inventory was recorded at 122,500 mt.
In 2023, the new energy field and the home appliance sector will be the main driver of copper consumption.
At the beginning of 2023, the scrapping of COVID-19 controls in China and predictions by meteorological experts that 2023 may be the warmest year in history bolstered confidence of domestic mainstream air-conditioning companies. Indeed, in the first half of 2023, domestic hot weather, improving consumption post-pandemic, and replenishment needs of distribution stores translated to stronger-than-expected production and domestic sales of air conditioner. That boosted copper consumption. In the second half of 2023, the output data of air-conditioning companies dropped significantly, which in turn dragged down copper consumption.
In 2023, new energy remained in the limelight. According to SMM survey, the growth in most companies' orders was driven by new energy-related industries.
In addition to macroeconomics, production, inventory, consumption and other major domestic and overseas events also affected the direction of the copper market. SMM excerpts some major events as follows:
The Supreme Court of Panama rules the Cobre copper mine contract signed by First Quantum unconstitutional, Cobre Panamá copper mine ceases operations
The operation of the Cobre Panamá copper mine was an important factor affecting the supply of copper ore from the beginning to the end of 2023. According to mining news, Panama’s Supreme Court ruled that the giant copper mine operating contract signed by First Quantum Minerals and Panama’s Cobre Panama was unconstitutional. Minera Panamá SA (MPSA), a subsidiary of First Quantum, said in a media statement: "Until the government sets out a clear roadmap, we cannot be sure how many employees will ultimately be able to continue working at the company to carry out environmental stabilization measures and maintenance ( non-operational) assets, a key factor in preventing future environmental disasters.
According to the company, the operations of the Cobre Panamá mine created more than 7,000 direct jobs and 33,000 indirect jobs. Since commissioning in 2019, the mine has accounted for approximately 5% of Panama’s gross domestic product and 75% of Panama’s goods exports. In the third quarter of 2023, Cobre Panamá produced 112,734 mt of copper, contributing $930 million to First Quantum's total third-quarter revenue of $2.02 billion. In light of recent developments, the Canadian miner asked the Miami Court of International Arbitration to protect its rights under the 2023 concession agreement agreed to by the Panamanian government earlier this year, as well as the Canada-Panama Free Trade Agreement.
First Quantum's announcement on November 20 showed that its subsidiary Minera Panamá paid taxes and royalties of $567 million for the period from December 2021 to October 2023 on November 16, 2023, in accordance with its contractual obligations to the Republic of Panama. The payment represents one of the largest taxes and royalties ever paid by the global copper mining industry and is Panama’s largest ever financial collection. In addition to these hefty taxes and royalties, the copper mine employs more than 2% of Panama's total employment and pays nearly $20 million per week to Panamanian suppliers. If the mine can continue to operate, its overall economic contribution to the country of Panama is estimated to be more than $50 million per week, equivalent to about 5% of Panama's annual GDP.
Panama and First Quantum agreed on contract to operate Cobre Panamá copper mine on March 9. The new contract guarantees Panama a minimum annual revenue of $375 million and is valid for 20 years with an option to renew for another 20 years. In January, the Panamanian government ordered First Quantum to stop operating the Cobre Panamá copper mine.
Teck: QB2 copper mine in northern Chile put into production, plans to produce 285,000-315,000 mt of copper 2024-2026
On April 6, Teck Resources Co. recently announced commissioning of the second phase of its Quebrada Blanca copper mine project. When fully operational, QB2 will double Tektronix's copper production. It has an initial mining life of 27 years and has huge potential for future growth. The project is targeting an annual copper production of 285,000-315,000 mt in 2024-2026. Teck maintained the output guidelines of copper in 2023 unchanged.
National standard for raw materials of secondary copper revised again
May 23: The State Administration for Market Regulation revised the national standards for copper alloy scrap and copper scrap, which will be implemented on December 1, 2023. The revision is based on the requirements made in the "Implementation Plan for Carbon Peaking in the Non-ferrous Metal Industry" issued at the end of 2022, which changed the policy for imported metal scraps from "allowing imports" to "encouraging the import of high-quality renewable resources."
Indonesian government will no longer export copper concentrate from 2024
On June 20, Indonesian President Joko stated that the country would no longer export copper raw materials and they must be processed into copper cathodes domestically. It is understood that Freeport Indonesia and Amman Mining will complete the construction of the smelter in 2024, at which time Indonesia will stop exporting copper concentrate.
China Molybdenum paid $800 million to resolve TFM production suspension crisis
July 9: At China Molybdenum’s 2022 shareholders' meeting, Chairman Yuan Honglin said that the company had previously been troubled by the "equity payment" of the TFM project in the Democratic Republic of the Congo, and disclosed in relevant announcements "a settlement of $800 million" and a "dividend of $1.2 billion". At present, the TFM production suspension crisis has basically been resolved, and about 200,000 mt of local copper products were shipped. All shipments were expected to be completed before the end of September and sold around the world.
Chile's national copper company cuts 2023 copper output forecast
On July 31, the chairman of Chile's national copper company (Codelco) said that due to recent heavy rains, copper production is expected to fall about 7,000 mt in 2023. Losses will include 2,000 mt from the El Teniente mine and 5,000 mt from the Andina mine, which produce a combined monthly output of 45,000 mt. Therefore, the company expected total production in 2023 to be 1.35-1.42 million mt.
Anglo American lowered total production targets for 2024 and 2025
Anglo American lowered its 2024 copper production target from 1 million mt to 730,000-790,000 mt, a decrease of 20% from its previous forecast. Output in 2025 is expected to be 690,000-750,000 mt. This is an 18% decrease from the previous estimate.
Zijin Mining resumed Porgera gold mine on December 22
August 29: Zijin Mining said that the Kamoa-Kakula copper mine project in the Democratic Republic of the Congo produced 197,000 mt of copper in the first half of 2023. At present, the first and second phases have been completed and put into operation, with a production capacity of 450,000 mt with copper content; the third phase and the supporting 500,000 mt of copper smelting plant are expected to be completed and put into operation in the fourth quarter of 2024, by which time the production capacity will be increased to over 600,000 mt with copper content. When the project’s processing capacity reaches 19 million mt per year and annual output exceeds 800,000 mt of copper, it is expected to become the world's second largest copper mine. Zijin Mining announced on the evening of December 11 that the company's Porgera gold mine in Papua New Guinea had reached all the prerequisites for full resumption of production and would officially start resumption of production on December 22, 2023. With the resumption of production systems such as mining and beneficiation, the first batch of gold after the resumption of production at the Porgera gold mine is expected to be produced in the first quarter of 2024.
Yunnan Copper: 55% the Southwest Copper relocation project completed, no more than 100,000 mt of total copper cathode output in 2024 to be affected
Yunnan Copper announced on the evening of December 29: In order to implement the rectification requirements of the central ecological and environmental protection inspection and the relocation and transformation requirements of hazardous chemical production enterprises in densely populated urban areas, optimize the smelting layout, and enhance the comprehensive competitiveness of the enterprise, Yunnan Copper Co., Ltd. Southwest Copper Branch is undergoing relocation and upgrading. According to progress requirements, the old equipment will be shut down in an orderly manner from December 30, 2023, to achieve the goal of defunctionalizing hazardous chemical production equipment. After completion, the Southwest Copper Relocation Project will have an annual production capacity of 550,000 mt of copper cathode, with a construction period of 23 months and a total investment of approximately 6.40 billion yuan. Up to now, the overall progress of the project is about 55% completed. The steel structure and furnace body installation of the pyrolysis plant are being implemented. The electrolysis system is initially planned to be installed in May 2024, and the pyro-system will be put into production in August.
Yunnan Copper also stated that the Southwest Copper relocation project is in line with national industrial policies and will help the company optimize its smelting layout and achieve strategic goals for the copper smelting industry. It is a key measure for the company to complete its green and low-carbon transformation and is in line with the company's construction needs of three copper smelting bases in the southwest, southeast and north. The relocation of Southwest Copper will not affect the company's overall production and operation plan, but it will have a certain impact on the company's operating performance. According to the company's preliminary calculations, based on the company's budgeted output of copper cathode of 1.28 million mt in 2023, the impact of Southwest Copper's relocation on the company's total output of copper cathode in 2024 is expected to be no more than 100,000 mt.
