Global Copper News: Russia's Supply Threat Has Little Impact on Copper>

Copper has remained calm amid turmoil in trading on the London Metal Exchange (LME) this month.

Trading in the London Metal Exchange (LME) nickel market was suspended on March 8 and briefly surged to an all-time high of $10,845 a tonne. The margin collapse sparked a brief bout of volatility in the London copper market.

But since then, LME three-month copper has only been treading water, last trading at $10,340 a tonne.

That's partly because the London Metal Exchange (LME) intervened last October to limit a severe time-lag crunch, and the London copper contract has been subdued after a runaway round of its own.

It's also because copper appears to be less vulnerable to disruptions in Russian supplies than other industrial metals such as nickel, which has been reeling from the Russian-Ukrainian conflict.

Russia is a large copper producer with an annual refining output of about 1 million tonnes, or about 4 percent of global production.

It is also a large exporter of unwrought metal and copper wire, but is less dominant in Western supply chains than palladium, with Norilsk nickel alone accounting for 45% of global production.

In addition, most of the exports end up in China, which absorbs about 400,000 tons of Russian copper each year.

The assumption is that the rest of the world can survive without Russian copper, and that China will easily absorb the copper replaced by Western markets.

This may be one reason why the copper committee of the London Metal Exchange (LME) felt able to vote for a ban on new deliveries of Russian copper to the exchange.

However, London Metal Exchange (LME) executives have made it clear that it does not intend to pre-empt government sanctions, nor does it intend to unilaterally ban any Russian metal.

According to the International Trade Commission (ITC), the country’s total unrefined refined copper exports in 2021 will be 463,000 tonnes, the lowest annual outflow since 2014.

This reflects a sharp drop in Norilsk Nickel's output after a temporary 15% export tax between August and December caused mine flooding and trade disruptions.

It is worth noting that exports in January were as high as 117,000 tonnes, compared to 35,500 tonnes in January 2021, demonstrating the inflationary effect of outbound flows under the tax shock.

During the 2018-2020 period, exports averaged around 700,000 tonnes, supplemented by 150,000 tonnes of copper wire, a better historical benchmark than last year's low ball count.

However, last year's trade data highlighted a major turning point in the flow of Russian copper to China.

Russia exported 155,000 tons to China, but China imported 403,000 tons of Russian metal.

A similar gap exists in trade data for 2020, with Russia exporting 276,000 tonnes to China and China importing 420,000 tonnes of Russian copper.

It is clear that large quantities of Russian copper destined for the Netherlands are being traded through the physical or LME trading system before sailing to Shanghai.

Goldman Sachs said that while there is a direct rail line between Russia and China that is currently used to transport copper concentrate, it has little spare capacity to refine the metal.

Most of the country's refined copper exports to China go through European ports such as the Black Sea or Rotterdam.

Goldman Sachs said, "Until shipping restrictions subside, copper supply in the Russian refining market will be reduced by as much as 50,000-60,000 tons per month."

It is now questionable how well the global refined copper supply chain can cope with disruptions of this magnitude.

Stock prices on global exchanges are low. Currently, 276,000 tonnes of copper are stored in warehouses at the London Metal Exchange (LME), Shanghai Futures Exchange (Shanghai Futures Exchange) and Chicago Mercantile Exchange (CME).

Total inventories have risen by 85,800 tonnes so far this year, but this is thanks to seasonal stock builds around the Chinese New Year holiday. Compared with the same period last year, foreign exchange inventory coverage decreased by 121,000 tons.

Since the beginning of the year, LME inventories have fallen by nearly 9,000 tonnes to 79,975 tonnes, equivalent to a little more than a day's worth of global use.

Time spreads have eased a bit, but this may have to do with the LME's cap on the spread across all major contracts, just as it has to do with the dynamics of copper itself.

Inventories on the London Metal Exchange (LME) are near depletion by any historical standard and are highly vulnerable to any new panic buying, such as the run on last October.

Russian copper has not been approved, at least not currently banned by the LME.

Reprinted from Changjiang Nonferrous Metals Network