Goldman Says the Outlook for Copper Supply Is Deteriorating

China’s “brewing” copper smelter bottleneck signals deepening supply worries for a metal market that’s already seen facing shortages this year.

So-called treatment charges paid in China by miners to smelters have tumbled to $56 a metric ton, the lowest in almost seven years, squeezing margins and potentially spurring more production cuts, according to Goldman Sachs Group Inc. analysts, including Alison Li. Output in the first half was curtailed after plants had their maintenance, access to credit tightened and technical issues hampered operations, the bank said.

Goldman analysts warned of “brewing copper smelter bottleneck” at a time when evidence of shortages are already emerging. On Monday, the International Copper Study Group said demand has exceeded supply by 155,000 metric tons in the first four months of the year. That’s bigger than the 64,000-ton shortfall recorded in the same period a year earlier.

Copper prices are little changed on the London Metal Exchange this year as trade war concerns outweighed supply disruptions that have worsened the outlook for shortages. The market “has not priced this tight supply story yet,” Goldman analysts said.

The analysts expect about 5.5% or 1.2 million tons of copper supply will be disrupted this year. That combined with a “relatively empty project pipeline will lead to the weakest supply growth in a decade, on a three-year rolling basis,” they said.

On July 18, the China Smelters Purchase Team, an organization that includes 10 Chinese companies, lowered their floor fees to $55 a ton, the bank said in a note Friday.


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