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Copper Plunges To Fresh 6 Years Low After Goldman Warns More Pain Ahead, Glencore Slides Back Under 100p
One month ago, when Glencore announced it latest copper production cut initiatives and mine mothballing efforts, we said that aside from the brief price spike, it would have absolutely no impact on the longer-term price dynamics of the metal which has achieved "doctor" status. The main reason we offered is that while Glencore was reducing supply, others such as Rio Tinto would gladly step in to fill the supply void. To wit:
Rio Tinto, warned that it will not cut copper production, saying it would be illogical to hold back output and leave space in the market for higher-cost rivals.
And just like that Glencore's assumption that others in the space will act rationally, and "cooperate" with the attempt by Glencore to impose a new game theoretical equilibrium by reducing supply, and thus boosting prices, has crashed and burned.
According to the FT, Jean-Sebastien Jacques, head of copper and coal at Rio, said the Anglo-Australian mining group would not reduce output even though current prices of the industrial metal did not reflect “fundamentals”.
Rio's CEO summarized his philosophy quite simply: "Why should I make cuts?” Mr Jacques said, in an interview ahead of LME Week, the biggest annual gathering of the metals and mining industry. "If you have marginal assets and marginal projects and you have a pretty weak balance sheet I think you may be in trouble pretty soon,” he said.
One month later, and just moments ago, we got confirmation of this prediction courtesy of the following two Bloomberg headlines:
- COPPER FALLS 1.8% TO $4,856/TON, REACHING LOWEST SINCE 2009
- NY COPPER DROPS AS MUCH AS 1.8% TO $2.177/LB, LOWEST SINCE 2009
Visually:
And intraday:
Worse for the company that as we said in early 2014 is the best proxy for both global copper demand and the Chinese industrial economy, after dead cat bouncing back to 125p in recent weeks, moments ago troubled Glencore (which alongside Volkswagen was one of the main corporate catalysts unleashing the September swoon) traded back under the psychological level of 100p.
So besides the obvious lack of actual wholesale production cuts as beggar thy higher-cost neighbor strategies are unleashed among the copper miners, did something else cause the latest overnight breakdown in prices?
The answer is yes, and it comes from a Goldman report titled simply enough "Copper poised to move even lower."
Here is how report author Max Layton explains, in many more words than we used a month ago, what we said in early October when previewing this latest tumble in copper prices.
Supply growth has been weak, but demand has been weaker
2015 has seen slow rates of copper mine supply growth on supply disruptions and price-related closures and refurbishments. Despite the lack of supply growth, copper is now trading near its year-to-date lows and more than 20% lower than at the beginning of the year. This speaks to the ongoing demand weakness and deflationary cost environment which has driven the market into surplus and reduced cost support (the latter via a stronger dollar and weaker energy prices). Ongoing price weakness, in spite of price-related output cuts, is consistent with our view that producers do not move markets into deficit by cutting supply... rather they move markets closer to balance (than they otherwise would be). A demand recovery along with further supply discipline is required to see markets such as copper move into deficit.
Nearer term, LME and Comex net speculative positioning has picked up in recent weeks, in our view, partly on an anticipated improvement in Chinese economic data during 4Q15 (Exhibits 1 and 3). Should the Chinese data disappoint, and positioning unwind to January levels, or even lower, to August levels, copper prices may fall further than our base case forecast, which is for $4,800/t by year end. Indeed, SHFE open interest has risen across the base metals complex over the past two weeks as prices have pulled back (Exhibit 2), potentially suggesting that participants trading on the SHFE exchange are concerned about ongoing weakness in China’s commodity intensive ‘old economy’.
Importantly, we expect mine supply growth to accelerate in 2016-17 in the face of only limited demand growth. Indeed, over the coming months and throughout 2016 and 2017 investment during the prior boom period is set to bear more substantial fruit, with 5 major mines (the “big 5”) starting up or expanding output significantly, adding c.1.4mtpa of supply capacity by end 2017, and underpinning an acceleration in mine supply growth from c.1% in 2015 to at least c.3% pa in 2016/17. The “big 5” to watch are Cerro Verde (commissioning, Peru), Las Bambas (commissioning, Peru), Buenavista expansion (ramp up, Mexico), Sentinel (Commissioning, Zambia), and Grasberg (higher grades, Indonesia). We assume far less than nameplate is achieved in our supply and demand balance, in Exhibit 5, which shows pre-disruption allowance figures that we use in our model (Exhibit 4).
Stronger mine supply growth puts pressure on demand to pick up in order to absorb it. While we assume that a modest demand recovery in China will keep the copper market surplus around c.500ktpa in 2016 in our base case (Exhibit 5), our conviction level here is not high, and as a result we continue to see the risks to our supply and demand balance and price forecasts as skewed to the downside.
Overall, we continue to see the risks towards our $4,800/t year end 2015 and $4,500/t year end 2016 price forecasts as skewed to the downside, and recommend producers hedge and investors run long dated short positions.
* * *
Finally more charts than one can wave an electricity-conducting stick at.
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And Fed Reverse Repos?
Dr. Copper also has a PhD. Perhaps better than the Fedheads?
Next stop Just above $4000
And after that
Just above £3000
Glencore..................to ZERO
Nah...it's different this time
Nah...it's different this time
... nuh oh, different. CU is below $0.15/oz.
Much more of that and a penny will be worthless. "$0.0145677 is the melt value for the 1909-1982 copper cent on November 12, 2015."
\s
Copper....the canary in the coal mine.
Welcome to the recovery.
Dear Kitco: You have run the same gold and silver charts for 12-14 trading days now. You and your overlords at COMEX have lost all credibility. What is the actual paper:phyzz ratio? 500:1? 1,000,000:1? How do you sleep at night?
It took Kitco how long to get rid of Jon Nadler?
These things take time.
Copper pipe still hella expensive at Home Depot.
A/C condensers are still being stolen.
You can take copper to the salvage......no questions asked.
It's almost as good as gold.....welcome to the recovery.
Not in the UK you cant, scrap is another "cash free" business by overlord mandate , cos you know , the usual thieves , launderers an terrists
Not in the UK you cant
That's why we went to war with those bastards.
Update: We won!
Louisiana has similar laws. If you sell or buy scrap copper in Louisiana then the money must be traceable.
Good thing too. Copper theft damages the victim 100 times more than it enriches the thief.
I was thinking of putting in a tankless water heater in 2007 when the price of copper was ridiculous at the last spike. I had a 45 foot run to do with 8 gauge three wire. The friggin' wire at the Homely Depot cost only $80.00 less than a new conventional 40 gallon electric water heater! So I installed another old school unit for another 10 years. Screw 'em. Pay me to take your fucking copper.
Give it a year or two. Raw material price changes take time to ripple through the supply chain. Home Depot is pretty far down the line from copper ore. In between are lots of inventory buffers managed by people who all need to realize that downward price pressure is a trend they must follow, not a fad they can weather, and relent to cut prices in response.
Or, just buy the wire from your local, friendly supply house. The cuts in copper are reflected within a month at the commercial level... it helps having known reps at the supply houses, but you already know that connections matter in the new world...
Long JJC then.
HHHMMMMMMMMMMMM.....
I cant hear you!
HHHMMMMMMMMMMMMMM...
Is this the paper copper price LOL
I like copper ETFs......I don't have to store it in the basement.
That crap is super heavy!!!
Funny how virtually every market is getting hammered by reality except equities.
"except equities"
Watched and highly protected by the banksters at the Federal Reserve.
Funny how virtually every market is getting hammered by reality except equities.
Funny how?
https://www.youtube.com/watch?v=IWINtUCshxY
Have faith grasshopper of the sea, reckoning will be swift and brutal.
world commodity markets continue to get Fugly. Begun, the commodity & currency wars have ~ Yoda
the EM's (especially China) have already started exporting deflation through lower & lower commodity prices. Those lower prices to realize cash to pay debt burdens in US $ trigger lower wholesale prices here in US (Home Depot is a retail store that does not lower the sticker price - they'll just lose sales).
Stronger $ causes those EM economies to consume more capital towards US $ debt repayment, causing more downside risk in those EMs.
Fugly has started - mark my words
NoVa
No worries, the staff on CNBC says the economy is gearing up for the best Christmas season in a decade...
GO SHOPPING..!
Will be +1-2% yoy.
The copy is already written.
Goldman commodity myth. The real story:
The latest estimates by the Lisbon-based International Copper Study Group paint a very different picture from the previous forecast made in April. The market is now expected to be broadly in balance this year and to fall into a deficit of 130,000 tonnes in 2016. This compares with April’s forecasts of surpluses of 364,000 and 228,000 tonnes respectively. I believe both the 2015 and 2016 will be much more in deficit even with a modest price recovery.
Escondida is the only mine to produce more than a million tonnes per year. It is also low-cost, below $1 per pound. Operator BHP in May completed a $4.2 billion expansion and is spending another $3.4 billion on water facilities. Despite the billions being spent and low-cost structure, Escondida’s output will fall by more than 200,000 tonnes this year as record material mined is offset by a sharp decline in grades.
Freeport is expecting lower output in 2015 due to the El Nino weather effect. Now it looks as if this weather impact will be even worse.
Since the Glencore copper inventory liquidation, LME warehouse stocks have been dropping like a rock. I am going to claim Cu is already in a big deficit. http://www.kitconet.com/charts/metals/base/lme-warehouse-copper-6m-Large.gif
Copper used to indicate strength in construction. No one uses copper now except for wiring. It's all cheap plastic shit. Houses are now disposable.
Pissing Pipes Promote PEX
Except on government projects, or big, big stuff, almost all construction uses cpvc or pex for domestic water.
This has to affect copper use.
Hvac is still copper.
Agreed - they jacked the price of copper so high that the builders had to switch. Now they will never go back.
whew, boy did we catch a lucky break what with our economy so strong we have to raise rates, its almost like all this just doesnt' matter;
so then fcx would only need how many tons of refined copper to pay off their debt and market cap? let's see, carry the one...
Yep, Happening Everywhere .... http://goo.gl/kz2odz. We are in deeper than last time (2008) but there is no official headlines.
Dr Copper is very ill