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While it wasn’t a breakout year for copper, it’s certainly been an interesting one. Here’s an overview of some of 2014’s key copper market events with commentary from Stefan Ioannou of Haywood Securities and copper company executives.
Despite kicking the year off with a rally, overall copper seems to have lived up to predictions for a lukewarm performance in 2014. The metal has averaged about $3.15 per pound for the year, according to Stefan Ioannou of Haywood Securities.
“We weren’t expecting 2014 to be a breakout year for copper,” Ioannou said. Granted, $3.15 per pound is still a higher average price than some firms were predicting at the end of last year — Moody’s saw copper coming in at $3 per pound. However, the metal has fallen back below $3 per pound leading up to the end of the year, which no doubt has some base metals investors feeling anxious.
Still, 2014 was an exciting year for the red metal, as there were plenty of unexpected events that affected the market.
Chinese shadow lending
Perhaps the biggest news affecting copper this year was the Chinese shadow lending scandal. Basically, copper and other metals were being held in non-bonded warehouses in China as collateral for loans, but problems arose when some people indulged in the not-so-kosher practice of using the same block of physical copper as collateral for more than one loan.
When China’s government started to crack down on the practice, there were concerns that investigations would lead to an influx of copper into the market as traders attempted to cover their tracks. However, as Ioannou noted, that didn’t happen, and “copper prices stayed fairly strong through the summer.”
Of course, with China accounting for over 40 percent of global copper demand, the shadow lending scandal was bound to top the list of big events for copper in 2014. However, Ioannou added that what may have caught people more off guard was the “massive market correction” seen across the board in September, which included copper. “A lot of that was driven off a strong US dollar,” the analyst said.
Other key events
Other events in the copper space that made headlines in 2014 include:
- Indonesia:On January 12, Indonesia implemented a ban on the export of mineral concentrates, putting in place new rules that require miners to build smelters and refine ore domestically. That put producers of copper, nickel, zinc, iron and other metals in quite a bind, and led to standoffs between Freeport-McMoRan (NYSE:FCX), Newmont Mining (NYSE:NEM) and the Indonesian government. Newmont went so far as to declare force majeure, halting operations at its Batu Hijau copper-gold mine, but Freeport eventually reached an agreement with Indonesia after a six-month export halt; Newmont followed at the start of September.
- M&A: The copper space saw quite a few mergers and acquisitions over the year, suggesting a boost in confidence for the red metal. Notable deals include First Quantum Minerals’ (TSX:FM,LSE:FQM) acquisition of Lumina Copper (TSXV:LCC) and the Taca Taca copper deposit in Argentina; the takeover of Augusta Resource (TSX:AZC) by HudBay Minerals (TSX:HBM) in a C$555-million friendly deal; and the acquisition of Curis Resources (TSX:CUV) by Taseko Mines (TSX:TKO,NYSEMKT:TGB) in November.
- Mount Polley: To be sure, one of the most shocking pieces of news this year was the massive tailings pond breach at Imperial Metals’ (TSX:III) Mount Polley copper-gold mine in British Columbia. The company’s share price dropped 42 percent on the day of the disaster, and its effects rippled out to other miners as well when the BC government called for an independent review of all tailings ponds in the province in the wake of the disaster. That wasn’t the only notable environmental disaster in the copper space this year either — a leak from Grupo Mexico’s (OTCMKTS:GMBXF) Buenavista copper mine turned Mexican rivers orange.
Companies weigh in
Responding to a survey on the market this year, Steven Dischler, CEO of Quaterra Resources (TSXV:QTA,OTCMKTS:QTRRF), and Fiona Childe, vice president of corporate development at Foran Mining (TSXV:FOM), had similar thoughts. Both expected 2014 to be another tough year for juniors, and both were definitely not far off in that respect. Childe even thought that the resource market might bottom in 2014, but admitted it isn’t clear whether that’s happened yet.
Still, despite a weak market, both companies said they were able to record some laudable achievements this year. Foran released a preliminary economic assessment for its flagship McIlvenna Bay project, while Quaterra secured an option agreement with Freeport-McMoRan Nevada; it covers all of the company’s Yerington assets and has the potential, after due diligence, to provide up to US$388 million in funding for the development of those assets.
Growing surplus or heading for deficit?
There have certainly been differing opinions as to how the copper market will end up when all is said and done in 2014. In an October update to its 2014 GFMS Copper Survey, the team at Thomson Reuters GFMS held to earlier predictions for a surplus, citing a ramp up of copper production in the second half of the year. The GFMS sees copper hitting $6,500 per tonne in Q4.
However, while the International Copper Study Group has also kept its call for a copper supply-usage surplus, it has revised its forecast down from 595,000 tonnes to 393,000 tonnes. Others, such as Reuters columnist Andy Homes, have suggested that a deficit could be coming sooner than we think, pointing to buying by London’s Red Kite and China’s State Reserve Bureau as important indicators that should not be ignored.
All in all, while it wasn’t a breakout year for copper, it’s certainly been an interesting one. Stay tuned for our outlook on what’s to come for copper in 2015.