May's copper price surge shook loose more scrap supply, resetting a choke
July 25, 2024
Key Observations:
Cash prices for refined copper boomed between February and May 2024 to move inventories from places where they were not immediately needed to locations (e.g., Germany and Spain) where supply chains had run thin during a manufacturing slump that extended from Jun 2022 through Feb 2024.
LME cash copper advanced by +36% in 101 days from the ytd low at $8,030 per mt (Feb 9) to the ytd high at $10,900 (May 20). The rolling prompt CMX futures price surged from $3.65 to $5.20 per lb. in the same interval, resulting in the equivalent of $11,464 per mt and a backwardated futures curve.
As exchange-deliverable Grade A cathode stocks moved around the planet, owners of used copper took notice. To scrapyards worldwide, they hauled old household appliances, computers, and autos. Contractors brought in flashing, pipe, and wire from recently demolished homes. The resultant surge in secondary supply quickly loosened the global copper scrap balance and pressed on price.
In our Red Lasso framework, the z-score for our composite scrap copper price index quickly reversed from its multi-year high. On July 18, this metric was below zero for the first time in more than two months. Today it is at -0.31 and falling.
The economics at work here are mostly supply-side: restocking and recycling. Global growth in use is slow and fragile but positive and growing. Production costs are rising. In this light, further price weakness is likely in the near term. But fears that the recent copper price slide is a harbinger of imminent global recession look overblown.
Source: SFE, Bloomberg, Blacklight Research.
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