The undersupply which has been building in the copper market is about to get worse, and that spells good news for the commodity.
According to a new report from Goldman Sachs, cited here by Mining Weekly, the treatment charges being paid to Chinese smelters have gone down to $56 per tonne — almost the lowest level in seven years.
This means that smelters could end up cutting production as they wait for treatment charges to go back up.
Output in the first half from Chinese smelters was already down thanks to individual plant issues, Goldman Sachs said.
It’s leading the bank to warn of a “brewing copper smelter bottleneck”, but so far the market “has not priced this tight supply story yet”.
The supply picture for the metal is already looking tight, with the International Copper Study Group recently indicating that demand exceeded supply by 155,000 tonnes during the first four months of the year.
Goldman Sachs said they expect about 5.5 percent (or 1.2 million tonnes) of copper supply to be disrupted this year.
That combined with a “relatively empty project pipeline will lead to the weakest supply growth in a decade, on a three-year rolling basis,” they said.
The supply picture has been quietly been building under copper since the start of the year, with the market looking at the geopolitical picture rather than market fundamentals for their trading queues.
But with the prospect of a detente in the trade war between the US and China seemingly on the horizon, copper’s undersupply could come into sharper focus.
Luckily for ASX investors, there are a number of quality copper explorers and producers to invest in.
For example, Caravel Minerals (ASX:CVV) is a copper exploration and development company focused on a new porphyry copper district discovered in a previously unexplored part of Western Australia’s Central Wheatbelt.
In fact, the Caravel Copper Project is the largest copper resource in Western Australia – at 1.86 million tonnes contained copper at 0.28 percent cut-off.
This content is produced by Star Investing in commercial partnership with Caravel Minerals. This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.
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