2018 The Global Copper Market Faces Double Supply Interruption Threat

- Jan 24, 2018-

2018 The global copper market faces double supply interruption threat. The strike posed a tremendous threat to the Lomas Bayas copper mine in Chile operated by Glencore. At the same time, the shadow copper industry in the shadow of a shadow over China's restriction on the import of foreign rubbish has caused an uproar in the waste plastics and paper industry. The global copper market faces the threat of double supply disruption .

One threat disappears, but new threats emerge. In 2018, the global copper market faces the threat of double supply disruption.

The Lomas Bayas copper mine, operated by Glencore, has just avoided a strike threat. Trade union workers accepted the conditions for a new labor contract at the last minute. The number of contracts renewed this year has hit the highest levels since 2010, mostly in Chile and Peru.

The strike threat posed a great threat to the mines, especially at Escondida, the world's largest copper mine. The mine last year's strike lasted 44 days. Analysts have all adjusted their estimates of supply disruptions, taking labor disputes this year into account.

The second threat comes from the haze of the scrap copper industry. The scrap copper industry is an important part of the supply chain, but it is not statistically transparent. China's restriction on imports of foreign rubbish has caused an uproar in the waste plastics and paper industry, and it seems that the turn should come to a halt. A whole series of new measures if implemented, may prevent scrap copper from being imported into China.

Huitong Network quoted Lion Consulting Asia president, copper trading veteran Michael Lion as saying: "Even in the most optimistic scenario, the serious disruption and disruption of the copper supply chain has been unavoidable."

Rule adjustment

China announced in July last year to adjust the import regulations of scrap copper to stimulate the vitality of the copper market. At that time, the threat was that import of "waste seven categories" would be banned from the end of 2018. It still seems to be the case now. "Waste 7" is still on the 2018 "restricted" list of entries. This type of scrap copper, including waste wire, waste motor motor, need to disassemble and then processing.

Chinese operators have seized the opportunity to transfer the processing of such materials to other Asian countries in preparation for a complete moratorium on imports. This low grade scrap copper usually has a copper content of around 14-15%, which accounts for only a relatively small part of the total copper import in China.

More importantly, the other two policy adjustments should be made visible in China's "blue sky" policy of reducing pollution. The first is to systematically eliminate the middle part of China's scrap copper supply chain. China's Ministry of Environmental Protection announced on December 15, 2017 that in the current year, only scrap copper end-users and processors would obtain import quotas. Traders and traders obviously do not qualify.

The second is recommended to limit the level of harmful impurities to 1%, only the most pure copper scrap to pass this quality threshold. The combination of these two rules will bring the 2018 new scrap copper import license application to almost collapse.

China scrap copper imports

China imports over 3 million tons of scrap copper each year. The steady decline in imports in 2013-2016 is partly due to the quality control measures taken earlier by the Chinese authorities and partly to the collapse in copper prices.

When the price is low, the depletion of old scrap supplies plays a role in balancing the excess supply of good copper; when the price picks up, the scrap copper chain is revived again. This is the case of the copper market over the past year or so. In 2016-2017, the price of copper rebounded sharply, the supply of copper scrap expanded its price and the supply surged. China also absorbed the new supply.

The cumulative import volume up to November last year increased 9%, the first time since 2012 that year-on-year growth. But unless China relaxes its new import restrictions, the next year may be another story. If China does not do so, it will have a serious impact on the supply of scrap copper, thus increasing the demand for refined copper or copper concentrates.

Refined copper imports decreased by 11% in the first eleven months of 2017, but imports unexpectedly rose to 329,000 tonnes in November, the highest level since December 2016 and out of market expectation. Therefore, the trade data in the coming months will be closely watched.

Misplaced and split

If China is facing scrap copper famine, then the rest of the world is immersed in the scrap copper feast. US scrap copper prices continue to expand.

According to S & P Global Platts, "No. 2" scrap copper price is 0.41 USD / lb compared with CME spot copper premium and 0.30 USD / lb premium in July. "No. 1 light (Bare bright) scrap copper is $ 0.14, a year ago for the $ 0.08 premium. "No. 2" copper scrap is usually copper and copper, need to be purified before processing.

New York Mercantile Exchange copper futures rose above $ 3.00 a pound by the end of 2017, which may have once again stimulated copper scrap supply, but this may also be the first sign of a reaction to the adjustment of China's import policy this year.

It seems that the global scrap supply chain will face one of the worst periods of "dislocation and fragmentation" and that there will be a shortage of scrap in China, while the rest of the world's scrap will steadily increase.

In the medium and long term, the market flow should be readjusted. China's waste industry continues to export more polluting waste seven categories may indicate that other types of materials will be more large-scale migration.

China's own waste generation and processing chain will grow steadily and become more organized. These processes all take some time, but China seems impatient.

China's metal scrap industry is currently supervised by regulators. Whether from the actual or analogy, the industry will be "clean up."

As of the end of November, 259 people were arrested for smuggling "rubbish". In the past two months, the two major ports of Xiamen and Qingdao all detained prohibited zinc waste. The authorities have handed out a series of formal inspections after wave of waves. In the frequent actions of the blue sky, China has shown its firm will to improve the environment.

A glimpse of the waste paper industry may help to understand the copper market. Import control of waste paper has led to soaring prices in China and stockpiles of suppliers. The scraps in the supply chain are facing turmoil and may not be as eye-catching as the imminent expiry of the mining labor contract. However, the impact it imposes may be far-reaching in terms of price and industry structure.