Refinitiv: COVID-19 Putting Pressure on Copper and Zinc

The coronavirus pandemic has hit all markets and supply chains around the world, with base metals such as copper and zinc feeling the heat during the first half of the year.

At the start of the year, research firm Refinitiv was expecting the copper market to be relatively balanced for 2020. Meanwhile, for zinc, cuts were needed sooner than later to prevent substantial surpluses from building as output looked set to continue growing — but then COVID-19 hit the world.

“Copper and zinc have been similarly affected,” Director of Metal Research at Refinitiv Bruce Alway said as part of a recent webinar.

“This is due to Peru, which is the biggest zinc miner and second biggest copper miner, and the strict measures imposed by the government to contain the pandemic.”

Since the start of COVID-19, base metals mines in Canada, Africa and Mexico have also been impacted.

“We have recorded sizeable losses for both copper and zinc at the mine level, which at the peak saw around 110 operations affected,” Alway said.

Sharing Refinitiv’s forecast in terms of output declines for copper, Alway said the firm expects Peru, Chile and the US to experience the biggest falls — and even though the disruptions are not all related to COVID-19, the majority are.

“COVID-19 has taken the majority of the 5 percent disruption allowance for the year. The second half should be much stronger in terms of supply; for example, we see minimum risk from industrial action.”

In fact, looking at labor negotiations in 2020, Alway said this year is set to be a busy one, with contract expiries at major copper mines that have a history of strikes, including Collahuasi and Highland Valley.

“But for now, the companies seem to have the winning cards in the current challenging environment, with workers unlikely to be in a position any time soon to demand big bonuses, increased benefits and salaries,” he explained.

Speaking about what’s ahead for zinc, Alway said Refinitiv has slashed its zinc forecast by 350,000 tonnes of mine supply from its pre-COVID-19 forecast for this year.

“We are now looking at a 2.6 percent mine decline year-on-year,” he said. “We are relatively cautious on the outlook for zinc mine supply in the light of earlier cutback announcements due to price weakness, and now with COVID-19 we basically double the year-on-year expected losses.”

Looking over to the copper space, Alway said Refinitiv is looking to a mine supply loss of 4 percent compared to 2019, or a drop of more than 800,000 tonnes year-on-year.

“This represents a (fall of) 550,000 tonnes from our pre-COVID-19 forecast made at the start of 2020, when we were still looking for a decrease, but only a marginal one,” he said.

In China, it is estimated that 20,000 tonnes of copper concentrate were lost in the first quarter, when it was the epicenter of the pandemic, but forecasts still suggest growth of 1.7 percent for 2020.

For Alway, the worst is “now behind us,” with roughly a third of suspended mines already back online, including many larger operations.

On Monday (June 15), copper was trading at US$5785.50 per tonne; meanwhile zinc was changing hands for US$1,991 a tonne.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.