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Commodities

Factbox-Main facts about the copper market as prices hit record highs

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LONDON (Reuters) – Copper surged to record highs on Monday as a recent rally triggered by short covering created momentum for speculators and funds to bet on higher prices of the metal.

Below are the main facts about the market, sourced from the International Copper Study Group (ICSG), the International Copper Association (ICA), and Reuters data.

INDUSTRIAL USES

Copper is used in the power and construction industries and is widely expected to benefit in future from the green energy transition via additional demand from the electric vehicle sector and new applications including data centers for artificial intelligence (AI).

Equipment manufacturing is currently the largest end-use sector for copper, followed by construction and infrastructure.

Global apparent use of refined copper rose from 10 million metric tons in the late 1980s to 26.5 million tons in 2023 as Asia became the largest consumer with a 70% share of consumption. As of 2022, China was the largest consumer of refined copper with usage of 14.7 million tons.

PRODUCTION CHAIN BY TYPE AND BY REGION

Deposits of copper, one of the first metals used by humans, are widespread around the globe. Scrap accounts for significant amounts of global supply annually.

Copper’s primary production chain starts from the mining of copper-bearing ores, then moves to production of copper concentrates typically containing around 30% copper.

The smelting process transforms concentrate into a matte containing 50-70% copper. The matte is processed into a blister copper of 98.5-99.5% copper content. In the next step, refined cathodes are produced with 99.99% copper content.

Copper mine production totalled 22.4 million tons in 2023, with Chile, Peru and Democratic Republic of Congo (DRC) being the largest producers. Production of refined copper, including secondary or scrap, totalled 26.5 million tons in 2023, with China being the largest producer.

MAJOR EXPORTERS AND IMPORTERS

Global copper trade includes all major products in the processing chain – concentrates, blister and anode, cathode and ingots, scrap and semi-fabricated products.

Chile, Peru and Indonesia are major exporters of copper ores and concentrates, while China, Japan and South Korea are major importers of these products.

In the market for copper blister and anode, Zambia, Chile and DRC are major exporters, with China and India being major importers.

For the refined copper trade, Chile, DRC and Russia are major exporters, while China, the U.S. and Italy are major importers.

SUPPLY-DEMAND BALANCE

The global 26.5 million-ton refined copper market was balanced in 2023, but faces a surplus of 162,000 metric tons this year and 94,000 tons in 2025, according to the ICSG, as refined production is forecast to rise by 2.8% in 2024 and 2.2% in 2025.

However, the supply of copper from mines has been lower than expected so far this year due to the slower ramp-up of a number of projects, delays in new projects and the December closure of First Quantum (NASDAQ:)’s major Cobre Panama mine.

© Reuters. FILE PHOTO: A shipment of copper is seen in the port of Valparaiso city, about 121 km (75 miles) northwest of Santiago, June 29, 2009.    REUTERS/Eliseo Fernandez/File Photo

This has tightened the supply of copper concentrate to smelters in China and is visible in collapsing refining and treatment charges (TCs) in the country.

Despite tight supply of copper concentrate, current demand for copper in China is relatively weak as inventories in warehouses monitored by the Shanghai Futures Exchange are near four-year highs and the premium to import copper into China’s Yangshan area is at zero.

Commodities

Oil prices flat as investors await US inventory data

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LONDON (Reuters) -Oil prices were broadly flat on Thursday as investors waited on developments in the Middle East, the release of official U.S. oil inventory data and details on China’s stimulus plans.

futures were up 25 cents to $74.47 a barrel at 0834 GMT, while U.S. West Texas Intermediate crude futures were at $70.64 a barrel, also up 25 cents.

Both benchmarks settled down on Wednesday, closing at their lowest levels since Oct. 2 for a second day in a row, after OPEC and the International Energy Agency cut demand forecasts for 2024 and 2025.

Prices have also fallen as fears eased that a retaliatory attack by Israel on Iran for the latter’s Oct. 1 missile strike could disrupt oil supplies, though uncertainty remains over how the conflict in the Middle East will develop.

“The country’s forthcoming retaliatory measures against Iran are still not clear,” said John Evans of oil broker PVM.

He added that the Middle East “will certainly provide enough reason to move oil prices again soon enough and investors today will also be preoccupied with an abundance of financial data”.

Among that data are U.S. oil inventories. The Energy Information Administration (EIA) will release its official government data at 11 a.m. EDT (1500 GMT).

The American Petroleum Institute’s Wednesday figures showed crude and fuel stocks fell last week, market sources said, against expectations of a build-up in crude stockpiles. [EIA/S]

“Any signs of weak demand in EIA’s weekly inventory report could put further downward pressure on oil prices,” ANZ analysts said.

PVM’s Evans also cited Thursday’s U.S. jobless claims data at 8.30 a.m. EDT (1230 GMT) and a rate decision from the European Central Bank.

© Reuters. FILE PHOTO: Oil tankers sail along Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel/File Photo

That decision may support oil prices if the bank goes ahead with lowering interest rates again, the first back-to-back rate cut in 13 years, as it shifts focus from cooling inflation to protecting economic growth.

Investors are also waiting for further details from Beijing on broad plans announced on Oct. 12 to revive its ailing economy, including efforts to shore up its ailing property market.

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Commodities

Is gold a safer investment than bonds? BofA answers

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Investing.com — Bank of America analysts argued in a note Thursday that gold is emerging as a more attractive safe-haven asset than government bonds, driven by fiscal concerns and global economic dynamics.

While falling real interest rates typically boost gold prices, BofA notes that “higher rates do not necessarily put pressure on gold,” signaling a shift in how the yellow metal reacts to macroeconomic conditions.

One of the key drivers, according to BofA, is growing fiscal pressure. The U.S. national debt is expected to reach unprecedented levels in the next three years, and interest payments on this debt are likely to increase as a share of GDP.

As BofA explains, “This makes gold an attractive asset,” prompting them to reaffirm their bullish target of $3,000 per ounce.

BofA also highlights that both leading U.S. presidential candidates—Kamala Harris and Donald Trump—show little inclination toward fiscal restraint.

In fact, “policymakers strongly favor fiscal expansion” globally, the bank points out.

Future commitments, including climate initiatives, defense spending, and demographic challenges, could raise spending by as much as 7-8% of GDP annually by 2030, said the bank, citing IMF estimates.

If markets struggle to absorb the increasing debt issuance, volatility could rise, further supporting demand for gold. “Central banks in particular could further diversify their currency reserves,” BofA notes, adding that gold holdings by central banks have grown from 3% to 10% of total reserves over the past decade.

Western investors have also stepped back into the gold market in recent months. Although China’s gold imports fell during summer amid stimulus efforts, non-monetary gold demand from Western participants has increased.

However, BofA warns that short-term gains may be limited as markets factor in “a no-landing scenario for the U.S. and a slower pace of rate cuts,” which could cap gold’s near-term upside.

“There is also a risk that gold may give back some of the recent gains, although we ultimately see prices supported at $2,000/oz,” BofA concluded.

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Commodities

Oil prices: Bank of America sees ‘more downside to $70 than upside’

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Investing.com — Bank of America (BofA) is forecasting more downside risk than upside to oil prices, with likely settling around $70 per barrel.

In a Thursday note, the bank’s commodities team shared a cautious view on oil due to several factors influencing the market, including OPEC’s supply dynamics and non-OPEC production growth.

“Our base case is $70/bbl (which we think is priced in), but we see more downside oil price risk than upside (OPEC spare capacity could easily cover most scenarios of barrels threatened by wider Middle East conflict),” strategists noted.

A key driver of this risk is the potential for OPEC to bring back an additional 2 million barrels per day to the market, on top of expected non-OPEC supply growth of 1.6 million barrels per day. BofA forecasts that global demand for oil is projected to grow by only 1 million barrels per day next year.

“Our call on OPEC is a very slow return of the ~2mbd – and this suggests ~6-7% of demand as OPEC spare capacity, according to energy data firm Woodmac,” the note continues.

“This ceded share has been higher in the past, but generally only in short, surprise demand downturns, not as a norm. To us, this suggests limited upside to our $70 Brent price and potential downside should OPEC regain share.”

In the current environment, BofA strategists said they prefer gas-linked stocks, particularly midstream companies. They note that while there is currently an oversupply of gas, the medium-term prospects are improving, with positive catalysts expected in 2025 as data center growth and liquefied (LNG) demand start to accelerate.

The team believes the market is underestimating the free cash flow (FCF) potential of their preferred companies, some of which could see payouts increase by 50% by 2027.

Cheniere Energy (NYSE:) remains BofA’s top Buy-rated pick, with the bank predicting FCF inflection towards more than $20 per share in the next three years.

Other Buy-rated energy names include Kinder Morgan (NYSE:), Williams Companies (NYSE:), and Chevron (NYSE:), among others.

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