Copper prices on the London Metal Exchange (LME) have been falling for several days in a row and have reached their lowest level since November last year. At the same time, the volume of copper inventories in warehouses monitored by the LME has almost doubled since mid-April. Experts and analysts name several reasons that have had a negative impact.
- China’s economic recovery is slower than previously forecast. And China is the main consumer of copper in the world.
- Unresolved issue with the ceiling of the US national debt. The last time it was set in 2021 at $31.4 trillion, however, the amount of debt exceeded the limit in January 2023. So far, US President Joe Biden and Speaker of the House of Representatives Kevin McCarthy have not reached an agreement on this issue. This uncertainty has led traders to avoid risk. Thus, the American stock indices at the beginning of the week fell by an average of 1%, and Asian stock exchanges on Wednesday also mostly show a decrease, Finam clarifies.
- Increase in copper production. As RBC Yekaterinburg writes with reference to industrial expert Leonid Khazanov, in the first quarter of 2023, copper output rose by 7.5%, which led to an expansion in the supply of copper on the global market and put pressure on its quotes. And if in 2022 there was a shortage of copper in the world, then, according to various analysts, in the near future it will even be possible to talk about its overabundance.
Russia’s share in global exports of refined copper in 2022 was 10%. Three companies are engaged in the production of refined copper in the country – UMMC, Russian Copper Company and Norilsk Nickel. The first two account for about 40 and 20%, respectively.
According to Leonid Khazanov, the decline in copper prices may have a negative impact on the company’s revenue, but such a decline is unlikely to be long-term. The opinion that price fluctuations are temporary was also confirmed by other experts.
“The reduction in copper prices, if it continues in June, may lead to a decrease in the revenue of UMMC and RCC by about 15% in the first half of 2023. In the event of a further fall in copper prices, it may decline even more – by 20-25% and even cause negative profitability of both companies, given their decent debt burden, ”RBC Yekaterinburg quotes Leonid Khazanov.
According to him, there are prerequisites for the recovery of copper prices. One of them is the emerging shortage of copper foil used in lithium-ion batteries in Southeast Asia. The expert notes that in the long term, copper prices may return to the level of 10 thousand dollars per ton “due to the limited supply of ores and concentrates due to the insufficient number of new projects for the development of red metal deposits in Latin America and Africa, which are in the stage of high readiness “.