Winter Park, Florida 26/08/2016 - JP Morgan expects the Chinese copper market to record an 800,000-tonne surplus in the first three quarters of this year amid strong domestic smelting output and lukewarm demand, it said.
"Supported by rising TC/RCs, Chinese cathode production increased 7.6 percent year-on-year in the first seven months of the year, according to the National Bureau of Statistics (NBS), well outpacing the two-percent pace in domestic demand growth and pushing the market into a visible surplus," the US bank said in a note.
According to FastMarkets, overall spot TC/RCs, the discounts on copper prices paid to smelters for the costs of processing concentrate to metal, are currently at $98-103 per tonne/9.8-10.3 cents per pound on a global basis. This remains higher than benchmark levels of $97.35/9.735 cents settled for 2016 supply between smelters and mining companies.
Chinese cathode production, however, could taper off between August and October, with major Chinese smelters set to undertake their planned annual maintenance.
"As the level of spot TC/RCs during negotiations are influential in determining the level of the annual benchmark for the following year, over the last couple of years we have observed an increasingly larger share of Chinese smelter maintenance taking place before the start of the negotiations in October," JP Morgan said.
"This should result in a tightening of the domestic cathode market, supporting the cathode premium but also leading to further increases in spot TC/RCs," it added.
FastMarkets' Shanghai copper cathode premium is currently at $40-50 per tonne CIF and in bonded-warehouse over LME cash prices. It has hovered around this depressed level since mid-April.
Still, the total level of refined production should remain high because Chinese concentrate imports have been growing 37 percent year-on-year on average over the last four months, supported by strong global mine production, JP Morgan concluded.
(Editing by Mark Shaw)