European copper markets face an uncertain year: 2023 preview

Recession is seen as a possibility in Europe, the sources said, citing inflation, energy prices and a series of other issues that could weaken the region’s economy. even with copper Seen as a leading factor for economic strength, concerns about weak consumer demand and a looming recession mean that European copper premiums are likely to take a hit.

The European copper market is also relatively tight at the moment, with fewer Russian copper imports in the region, according to multiple trader sources. They said this was exacerbated by the large amount of Russian copper already stored in European warehouses, limiting the available space.

Annual contracts were recorded at record highs that were 85% higher than those recorded last year, but with demand still unclear in 2023, the question for market participants is: Where do European spot premiums go from here?

Unclear demand in 2023

For everyone base metals Markets, there is a lack of clarity about potential consumption next year. It is difficult to see exactly how consumption will develop in 2023. Duncan Hobbs, head of research at UK-based commodity trading firm Concord Resources, predicted two possible scenarios.

First, the European economy could falter and there will be a drop in copper requirements. “A weak economy reduces consumer spending,” Hobbes said. “Europe – and Germany in particular – are major exporters, so headwinds to the global economy could affect copper needs… [prices for copper] It could go down in this scenario.”

The second scenario describes a smaller slowdown, which indicates that the need for copper is higher than expected. “However, if the downturn is not significant, consumers may be distressed,” Hobbs said [on supplies] And you need to source more [the spot market] later in the year, resulting in higher insurance premiums.”

Most market sources believe that there are likely to be problems affecting demand. One analyst said that demand is likely to be at least somewhat weak in 2023, and that although the electricity sector and some parts of the industrial sector will be hit less severely, consumption among end consumers and in the construction sector is likely to be weak.

Traders told FastMarkets in December 2022 that the difficult economic situation will definitely have some impact on the copper market in Europe in 2023. Although the auto sector is doing well, one trader added that “every other sector is already weakening” and that although the situation is The market still can’t be “just right”.

A second trader offered a somewhat more optimistic view, agreeing that demand for cars is returning but adding that electronics too have been “booming”, though acknowledging that the build has been a “disaster”.

The same trader also said that “with no new plays, things should be fine,” adding that they are “relatively optimistic” about 2023.

Other than construction, the same source believes demand will return to pre-Covid levels, concluding that “volumes will not be weaker” in 2023 than they were in 2022.

Supply concerns loom for next year

A number of sources also raised concerns about the offer. At present, Hobbs said, the market is “very tight.”

The senior trader said the decline in Russian copper imports to Europe “more than made up for with the loss in demand”. He pointed out that Europe will lose huge amounts of its traditional sources of supply due to the decrease in demand for Russian materials in light of the trade sanctions imposed on the country after its invasion of Ukraine.

The second trader-exporter agreed, saying that a much smaller amount of Russian copper will enter the European market in 2023 than in previous years. A third who was circulated added that Russian material was already less acceptable at the end of 2022.

Another factor limiting supply is that LME warehouses entered 2023 with the lowest opening inventory levels for the year since 1997. The LME is a ‘market of last resort’ and in previous years consumers could always turn to LME warehouses for metals if they were in need, but that will be more difficult this year.

The warehouse problem is becoming more serious because large quantities of copper in European warehouses are of Russian origin, according to multiple copper sources and escrow dealers. Out-of-collateral copper stocks are down 36% year-on-year, according to the latest data from the London Metal Exchange.

Supply concerns, along with a number of other factors such as increased shipping and production costs, have led to significantly higher annual copper premium levels, which FastMarkets understands were agreed to be around $230 a tonne.

Europeans‘ And Codelco The annual record numbers were 80% higher for 2023 compared to last year. Fastmarkets has also been told that annual figures for traders have been agreed to be close to those numbers.

“Refined copper demand is expected to continue to be healthy in 2023, and combined with the very low inventory situation across all three exchanges, this points to an ever-tight market for 2023,” said Michael Hellemann-Sørensen, senior vice president, commercial, at Eurobis, On October 13, while discussing a premium increase.

Soerensen added that the rise was due to “a sharp increase in production costs and very high freight charges, coupled with expected good demand for refined copper and a tight market in 2023.”

Lack of supply affects the spot market

The effects of Europe’s tight supply situation, lack of clarity on demand, and high record annual contract prices are likely to have consequences for the spot market.

Initially, after first hearing the Aurubis and Codelco numbers hit the market, participants said some may be willing to leave more of their supply needs to the spot market. With annual prices rising, and a possible recession on the horizon, several market participants told Fastmarkets that some who normally rely on annual deals are leaving more material for the spot market.

The argument was that if demand fell as low as some believed, spot prices could fall below annual contract levels. In this case, consumers will not be able to recover the insurance premiums if they need to sell items that they have not used.

Beyond that, in theory, if spot levels drop, consumers could save money in 2023 by buying a higher-than-normal percentage of their items in spot terms.

In the end, consumers seem to have widely accepted annual rates. “No one wants to be short,” said the second trader. “Customers don’t really think about the stain [as a replacement to annual deals]He continued, “adding that – despite discussions about increasing focus on spot trading – these discussions subsided before the end of the year.

The second trader added that saving “a few bucks” was not worth the risk. The source of the first trader said that reliance on spot deals has led to more time constraints and is less consistent than in annual deals, which means that fears of increased reliance on spot trading are unlikely to materialize.

However, sources indicated that the balance of APAs compared to spot trading is likely to shift slightly towards the spot price, if only because consumers demanded lower volumes due to demand concerns.

In the first pricing session of 2023, on Jan. 10, Fastmarkets did a valuation First class premium copper cathode, Germany delivered, at $160-190 a ton, up from $140-160 a ton in the previous pricing session. This upward move was due to market participants already commenting on the effects of the new annual deals.

Fastmarkets has rated Grade A premium copper cathode, CIF Leghorn, at a price of 150-170 dollars per ton on the same day. But the premium could be as high as $200 a ton because “there is a lot of confusion in the market right now.”

And Fastmarkets evaluated Grade A premium copper cathode, CIF RCat $50-100 a ton on January 10, unchanged since September 6.

One trader source noted that since annual deals increased so much through 2023, many market participants were making sure they were well supplied during the first quarter, hoping they wouldn’t need to turn to the spot market.

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