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Copper prices soared on Wednesday to their highest in seven months after Chinese smelters, which process half of the world’s mined copper, agreed on a joint production cut.
Benchmark three-month copper on the London Metal Exchange (LME) CMCU3 touched $8,843.5 a metric ton, the highest since Aug. 1, 2023. It last traded 1.9% up at $8,823.5 in the official rings.
The rise started on the Shanghai Futures Exchange (SHFE), where copper SCFcv1 reached a two-year high of 70,460 yuan ($9,796) per ton.
China’s biggest copper smelters met in Beijing on Wednesday, agreeing on a symbolic cut in loss-making production, without specifying volumes and timing.
“It’s a knee-jerk response to rush in. Interest spiked on SHFE right after the announcement of China’s production cut,” a trader said. “Who will admit they are the first to turn unprofitable?”
Shortages have led to intensifying competition for mined copper concentrates, causing a sharp fall in income for smelters to decade-low levels.
“But it’s important to note that there are around 1.7 million tons per year new ex-China smelter projects that are expected to come online in the second half, which will put more pressure on global concentrate supply,” Brian Peng, a copper analyst at consultancy CRU, said.
More global copper smelters were not operating in the first two months of the year than in the same period last year, mainly because of Chinese inactivity, data from satellite surveillance of metal processing plants showed.
However, higher copper prices could further dampen demand in top consumer China, as can be seen in inventories.
Copper inventory in warehouses monitored by SHFE CU-STX-SGH rose steeply to 239,245 tonnes as of March 8, from 30,905 tonnes in the beginning of the year.
“It could be profitable for Chinese producers to sell copper overseas with the current differences in LME and domestic prices,” the trader added.
Clarity on demand prospects could be provided by China’s loan data due this week, which includes total social financing numbers, a gauge of future metals consumption.
LME aluminium CMAL3 gained 0.2% to $2,269 a ton, nickel CMNI3 eased 0.6% to $18,440, zinc CMZN3 edged up 0.1% to $2,564.5, lead CMPB3 went up 0.7% at $2,159while tin CMSN3 rose 0.6% to $27,690.