Copper Hits Two-Year High as Rio Delay Sends Fresh Supply Jolt
2020-08-19 10:33:38.236 GMT



By Mark Burton and Libby Cherry


(Bloomberg) -- Copper climbed to a two-year high as Rio
Tinto Group’s delay in restarting a U.S. smelter added to supply
disruptions that have underpinned a price rebound and left the
industry running low on inventories.


The advance came as most base metals rose on Wednesday amid
broader market gains. In aluminum, traders also braced for
turmoil as Norsk Hydro ASA said output at the largest alumina
refinery outside China could be curtailed for a couple of
months, bolstering sentiment in a market that’s been pressured
by cratering demand and stubbornly resilient supply.


While aluminum is still trading down this year, copper is
up almost 8% and has rebounded by more than 50% from a March
low. Demand has recovered strongly, and the coronavirus crisis
has hurt supplies of mined copper and scrap, leading to a sharp
decline in stockpiles, particularly in Asia and Europe.


With Rio Tinto cutting its copper production guidance due
to the issues restarting the Kennecott smelter in Utah, the U.S.
market also looks set to face a crimp on supply, just as data
such as home construction starts suggest the economy is bouncing
back. Stockpiles are at a 13-year low on the London Metal
Exchange and spot contracts are trading at a steepening premium
to futures, signaling near-term supply is running short.
Copper rose as much as 1.8% to $6,686 a ton, the highest
since June 2018, and traded at $6,660 by 11:32 a.m. on the LME.
“Copper’s move through the recent highs above $6,600 may be
viewed by some as the end of a spectacular rebound,” Luke
Sadrian, chief investment officer at Commodities World Capital,
said by email. “We view it more as the start.”


The supply concerns and rising demand in Asia and Europe
mean copper could soon push above $7,500, as years of range-
bound trading give way to a more constructive period for the
metal viewed as a global economic bellwether, Sadrian said.
Read More: Rebounding Copper Demand Drives LME Stockpiles
Lower


“Inventories have been withdrawn too quickly, there are
risks of a supply squeeze,” Li Li, an analyst with Jinrui
Futures Co., said by phone from Shenzhen, China. Weakness in the
dollar and strong economic data from both China and the U.S.
also aided overall market sentiment in base metals, Li said.

Aluminum

Aluminum rose 0.5%, trading near the highest since January,
after Norsk Hydro said it will slow production at the Alunorte
refinery amid extended maintenance on a pipeline transporting
bauxite from the Paragominas mine. If the situation isn’t
resolved within three weeks, then alumina prices may surge in
the short term, Mysteel Global said in a note on Wednesday.
Even so, aluminum may struggle to climb much higher as
overall supply remains high, and there are headwinds arising
from U.S.-China trade tensions and a faltering economic recovery
outside China, according to Casper Burgering, a senior commodity
economist at ABN Amro Bank NV.


“Everyone wants to keep producing, so the effect of the big
supply for aluminum will eventually kick in,” Burgering said by
phone. “I don’t think that by the end of this year this run up
will continue.”


Investors are also keeping an eye on trade tensions.
President Donald Trump said he called off last weekend’s talks
with China, raising questions about the future of a trade deal
that is now the most stable point in an increasingly tense
relationship.

--With assistance from Winnie Zhu and Phoebe Sedgman.