Currently, China is the largest consumer of copper globally. It is expected that in 2023, the country will purchase more copper from Russia in an effort to decrease the impact of the expected rise in premiums from other miners around the globe.
Forecasts from various market participants show that premiums of physical copper sales to the East Asian nation will increase by between $150 and $210 per ton, over the London Metal Exchange’s benchmark price.
Codelco, the largest miner of copper around the globe, has already increased its premiums for sales to the European Union in 2023 to $234 per ton. This represents a more than 80% increase from their 2022 premiums.
Buyers in China opting for refined copper from Russia does not bode well for typical suppliers located in Congo, Australia and Chile. The switch to Moscow may not be smooth, however, as imports from the Kremlin continue to draw scrutiny following Russia’s invasion of Ukraine earlier this year.
It doesn’t help that the United States could potentially ban aluminum imports from Russia either, or that the London Metal Exchange is also contemplating a ban on metal from the Eastern European country.
One copper tube producer based in China stated that an increase in the price of copper would prompt the company to buy from the spot market to avoid paying higher premiums. The producer added that it expected more of the red metal from Russia coming into China in 2023 as buyers would be attracted to the lower prices.
Buyers in China are hesitant to enter into annual contracts at fixed premiums given the worsening property market and the measures imposed to help contain coronavirus outbreaks, which have impacted the consumption of copper. CRU Group forecasts that the annual demand growth for refined copper in China will drop to roughly 2% in 2023. This will be quite a decline from the 5% demand growth recorded five years ago. Concurrently, the consultancy company also predicts that the production of refined copper in China will increase by 6% next year after a number of major producers of copper in the country increased their capacity.
He Tianyu, a CRU Group copper analyst based in Shanghai, stated that an increase in the purchase of copper from Russia was likely, especially if the country’s prices were lower and sanction free.
Last year, Russia made up 11% of copper imports into China. In recent months, this figure has increased with latest customs data from China showing that in August, copper imports from Moscow totaled more than 33,000 tons. This amount is more than 30% higher than the copper imported from Russia in August 2021.
With the copper segment shaping up for shortages in the near term, extraction companies such as Southern Copper Corporation (NYSE: SCCO) could be set to offer even greater shareholder value to their investors.
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