By Andy Home
LONDON- The deadly coronavirus has taken a heavy toll on the world’s copper mines.
Output in key producer countries such as Peru cratered over the second quarter of 2020 as lockdowns and quarantine measures caused many mines drastically to reduce operations.
Recovery has been patchy. Peruvian mines had just about returned to normal run-rates by October, but output in Chile, the world’s largest copper producer, started sliding in the third quarter after a robust first half of the year.
Global mine output in the first 10 months of 2020 was still 0.5 percent lower than 2019 levels, according to the International Copper Study Group (ICSG).
What was supposed to be a year of mined supply growth turned out to be the second consecutive year of zero growth.
The resulting supply chain stress is manifest in this year’s benchmark smelter terms which are the lowest in a decade.
There is as yet no sign of a turnaround in the raw materials segment of the copper supply chain, suggesting full COVID-19 recovery could be a protracted affair.
Treatment and refining charges, which are what a smelter levies for processing copper concentrates into refined metal, are the best indicator of what is going on in the opaque raw materials market.
And the message is clear. There’s not enough concentrate to go around.
The benchmark terms for this year’s shipments fell to $59.50 per ton and 5.95 cents per pound from what was already a lowball $62.00 and 6.2 cents in 2019. They haven’t been this low since 2011, another year of mine supply stress, when they were settled at $56.00 and 5.6 cents.
Last year’s supply woes coincided with increased appetite in China as new smelters entered the competition for raw materials.
That should have translated into more concentrates imports. But after increases of 14 percent and 12 percent in 2018 and 2019 respectively, imports were down by 1 percent over the first 11 months of 2020 as smelters struggled to source material.
Unless there was a big rebound in December itself, 2020 could be the first year of lower concentrates arrivals since 2011.
An unofficial ban on Australian material hasn’t helped. Strained bilateral relations between Australia and China have impacted Chinese purchases of copper concentrates, which fell to zero in December.
However, Australia was only the fifth largest supplier to China in 2019 and although constricted trade has exacerbated the tightness, the root cause has been COVID-19 disruption, particularly in Peru.