US copper cathode premiums have slightly weakened amid the Covid-19 pandemic, which has generated competing supply and demand forces.
The spread of Covid-19 has caused weaker Comex copper exchange prices while elevating stockpiles at exchange warehouses. It has also caused a rash of mine shut-ins globally in order to contain the coronavirus spread.
The reduced production would normally strengthen copper cathode premiums, but the virus has shut down other parts of the economy which has decreased consumer demand and softened premiums.
US premiums have weakened to 6.5-7¢/lb to end the first quarter, compared to a 2020 high of 8¢/lb at the end of January.
But increasingly limited spot demand has made it hard for market participants to judge the price level for premiums, with much material currently being shipped under contract.
Spot cathode liquidity had already declined in 2019 and into 2020, but has been compounded by the coronavirus with many businesses closed or operating at reduced levels, including copper mines.
Many major mine operations have reduced workforces, curtailed production activities and some have been placed on care and maintenance during the Covid-19 lockdown.
In the US, Freeport-McMoRan closed its Chino copper mine in New Mexico indefinitely, while Asarco employees remain on strike for over six months across its five production facilities in Arizona and Texas.
The global leader in copper mining, Chile, has also curtailed mining production.
Anglo American's Los Bronces copper mine reduced operations 19 March while Codelco's El Teniente scaled down operations. On 22 March, Escondida, Chile's largest mine, and Pampa Norte excluded contractors from the mines for 15 days. Los Pelambres copper mine expansion project was put on care and maintenance for maximum of 120 days.
Peru, the second largest copper producing country, also has several mines that reduced or closed operations.
Brazil-based Vale's Voisey Bay copper mine in Canada went on care and maintenance for four weeks starting 17 March, while the Mexican government suspended operations at the Buenavista copper mine until 30 April.
The rash of shut ins has led to some recovery in the Comex copper price.
The spot Comex price dropped by 59¢/lb over the course of the first quarter to $2.24/lb on 31 March as the pandemic spread, but has since rebounded to the low-$2.30s/lb, partly in reaction to mine shutdowns.
Lower exchange prices usually strengthen US copper cathode premiums to get to a higher all-in price.
Meanwhile, LME copper stocks have been on a stairstep rise, starting the first quarter at 144,675t and ending at 222,225t. As stocks rise, premiums typically feel a headwind. So far, that has been mostly offset by lower mine operations.
