By ANDY HOME –
THE prices of copper have finally emerged from their extended winter hibernation, breaking out of an eight-month trading range to hit two-year highs.
The prices for three-month copper on London Metal Exchange broke through the top of that range at $6,200 last Tuesday and have not relented since.
Yesterday morning they touched $6,430- per-tonne mark, a level not seen since May 2015.
The wake-up call came in the form of news of a potential Chinese ban on some imports of copper scrap.
China is the world’s largest importer of scrap metal, sucking in more than three million tonnes a year to supplement its copper needs.
The market’s bullish take is that a partial ban will mean heightened demand for imports of copper in other forms, whether mined copper concentrate or refined metal.
The timing of the proposed ban, in late 2018, throws in some additional bullish spice, since there is a broad consensus among analysts that the recent surge in mined production will have dissipated by that stage.
In the case of copper, scrap affects the broader market in two different ways.
It can boost refined metal supply by offering smelter-refineries an alternative feed source to mined concentrates.
And it can impact demand by offering first-stage manufacturers a cheaper feed source than refined metal.
The International Copper Study Group (ICSG) estimates that refined copper production from secondary (scrap) sources jumped by 12 per cent in the first four months of this year.
That more than offset a two per cent decline in primary production, which is refined copper produced from copper concentrates.
On the demand side of the equation, it is notable that China’s appetite for imported refined copper has been subdued this year even while imports of scrap have increased.
Bountiful scrap has filled the supply gap left by a string of mine disruptions in the first half of the year and acted as a significant price stabiliser.
The process can work in reverse as well.
During periods of sharply falling prices, scrap supply dwindles, acting to reduce secondary production and increase demand for primary metal among fabricators.   —REUTERS