Copper prices are seen as an indicator of global economic activity. While copper fell below the psychologically crucial $6,000 per metric level a few times in 2018, it managed to hold that level in the recent market crash. Copper has thrown mixed signals for investors in the past month.
Copper’s inventory levels have fallen in 2018, which reflects strong demand. Last month, Antofagasta (ANTO) and Chinese smelters agreed on lower TC/RCs (treatment and refining charges). TC/RCs generally fall when the concentrate supply is tight. Although lower TC/RCs could also be attributed to rising smelting capacity in China, which leads to higher concentrate demand, copper miners including Freeport-McMoRan (FCX) have pointed to strong underlying demand from China (FXI). In what could be a bearish indicator, earlier in December, Reuters reported that China’s copper delivery premiums have fallen to an 18-month low.
While China’s unwrought copper and copper concentrate imports fell year-over-year last month, the imports have risen on a year-to-date basis. While higher imports are also partially due to China’s ban on scrap imports, the imports are a bullish driver for copper markets.
Copper has been throwing mixed signals for markets. Copper has been one metal where mining companies including Vale (VALE) and BHP Billiton (BHP) have a positive outlook and have looked open to expansion. Given the concerns about China’s economy and the broad-based selling in equity markets, the possibility of copper falling below its 2018 lows can’t be ruled out in the short term.
Next, we’ll discuss Freeport-McMoRan’s outlook.