Copper market fragile amid supply issues, zinc oversupplied

The current supply situation in the copper market remains fragile amid the current supply situation. 

Copper prices saw a temporary surge of nearly 5% after the operator of Indonesia's key Grasberg mine declared force majeure on its contracted supplies earlier this week. 

The production at the mine had to be halted due to an accident at the beginning of the month.

“At least since the treatment and refining charges at copper smelters had virtually collapsed - indicating a shortage of raw materials - concerns about a supply shortage have increased,” Thu Lan Nguyen, head of FX and commodity research at Commerzbank AG, said in an update. 

Growth in mine production

Mine production has shown stronger growth in the first seven months of this year compared to previous years, according to the latest data from the International Copper Study Group (ICSG).

Production increases from top exporters like Chile, Peru, and the Democratic Republic of Congo have fueled growth.

Conversely, Indonesia's supply has decreased by 32%, primarily due to existing problems at the Grasberg mine.

Global mine production saw an increase of 3.4%. Similarly, metal production rose by 3.9% in the first seven months, surpassing last year's output, according to experts.

Chinese smelters have reportedly urged the government to implement stricter regulations on the expansion of production capacities.

“This suggests that production may not increase as significantly as in recent years but is likely to remain at a high level,” Nguyen said. 

Global copper demand, largely driven by China's approximately 60% share, is on the rise. However, consistent and dynamic production has recently led to a supply surplus of 100,000 tons.

Nguyen added: 

Zinc market oversupplied

The zinc price has experienced a notable decline of 2% since the start of the year, making it the poorest performer among all base metals. 

This drop highlights a challenging period for zinc in the global commodities market, setting it apart from its counterparts such as copper, aluminum, and lead, which may have seen different price trajectories or even gains during the same period. 

The International Lead and Zinc Study Group's most recent market balance data indicates an improvement in the supply situation.

While zinc production fell by over 3% last year, disappointing expectations, the first seven months of the current year show a modest increase of just over half a percent.

Demand was exceeded by supply by around 70,000 tons. However, with the year still in progress, this figure may change.

LME-registered zinc stocks have fallen by 230,000 tons since last December, a significant warning sign.

This decline comes at a time when the supply surplus is less than half of what it was during the same period last year.

“Nonetheless, we expect the market to remain oversupplied this year, given the weakening demand from the steel industry,” Nguyen said.