This slump in iron ore prices contrasts with copper, which is trading at its highest since the middle of 2022, up 10% so far this year, fuelled by supply risks and improving demand prospects for metals used in the green energy transition.
The main catalyst for copper’s rally is the unexpected tightening in the global mine supply, most notably First Quantum’s mine in Panama, which has removed around 4000,000 tonnes of the metal from the world’s annual supply. In addition, Anglo American said it was cutting output by 200,000 tonnes. And Codelco, the world’s biggest copper producer, is struggling to recover from the lowest output in a quarter of a century.
Most recently, Ivanhoe Mines reported a 6.5% quarterly drop in output at the Kamoa-Kakula mining complex in the Democratic Republic of Congo.
Copper smelters in China have pledged to curb output in response to a tightening copper ore market and following a collapse in spot treatment and refining charges to record lows. Spot charges in China plunged to $2.30/t last week, according to weekly data from Fastmarkets. They are now down more than 95% since the beginning of the year.
The drop in treatment charges reflects not only the tightening concentrates market but also the rapid expansion in copper smelter capacities in China. China’s strategic need for copper has driven this expansion as demand from the green energy sector continues to grow. Last year, China’s production of refined copper surged 13.5% year-on-year to 12.99 million tonnes, according to data from the National Bureau of Statistics (NBS).
The global refined copper market was expected to be fairly balanced this year, but the shortfall in mine supply now means that the market is likely to be in a deficit. The extent of this deficit will also depend on the scope of Chinese smelters’ production curbs and how quickly Chinese copper demand will pick up in the second quarter, which is seasonally the strongest for copper demand.
Hopes for a global recovery in demand this year are also supporting copper, with manufacturing activity picking up globally. In China, the official manufacturing purchasing managers’ index expanded in March for the first time since September.
