Copper and Zinc Hold Steady; Other Base Metals Sag



What spot copper is doing

Spot copper closed at $5,270 per metric ton on October 16, having lost ~0.9% last week. However, copper is still up ~8% from the six-year low it hit on August 24. The graph below shows the recent trend in copper prices.

In October, copper and zinc have been among the better-performing commodities (DBC). So far in October, the benchmark iron ore contract has lost 3.7%, while aluminum is trading flat. Copper has gained ~3.4%, and zinc is up more than 7.5%.

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Supply cuts

Freeport-McMoRan (FCX) and Glencore (GLNCY), the number-two and number-three copper producers globally, have announced significant production cuts. BHP Billiton (BHP) and Rio Tinto (RIO) don’t plan to cut copper production.

Most miners are still making decent money on their copper operations, and cutting production would mean leaving profits on the table for the competition. Companies have been shelving their high-cost operations in a bid to remain competitive in the current challenging times.

Better than aluminum

Production cuts seem to have some impact on copper prices. It’s at least better than aluminum, where years of supply cuts by major producers have failed to restore the desired balance in the market. Aluminum production cuts by companies such as Alcoa have been counterbalanced by growing Chinese exports.

Fortunately, the copper industry doesn’t face any supply threats from China, as the country lacks in copper reserves and should continue to remain a major copper importer. Having said that, any major upside in copper prices currently looks unlikely, as China’s copper demand is also slowing down.

In the next part, we’ll explore how Freeport’s 3Q15 earnings could play out.


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