Major Russian copper producers are set to weather the storm as a weaker ruble offsets global price decline.
A Global Drop in Copper Prices
Copper prices have plummeted to their lowest point since November 2022, according to data from the London Metal Exchange (LME). After dipping below the $8,000/t benchmark in May, they further slipped to $7,899/t on October 6. This decline represents a 6% decrease from the beginning of the year and a staggering 10% since August.
This trend mirrors the U.S. Comex exchange, which listed copper at its lowest in nearly a year at $3.56 per pound on October 6.
The China Factor and Historical Highs
Following the start of the war in Ukraine, copper prices, like many other base metals, saw a significant boost. The all-time peak for LME copper prices was in March 2022, reaching an impressive $10,674/t. Yet, by mid-March, prices began to wane, attributed to a COVID-19 resurgence in China, Europe’s energy crisis, and the U.S. FRS rate increase.
Russia’s Role in the Global Market
In 2021, Russia slashed its copper exports by 40% y-o-y, totaling 463,000 tons. The production numbers, however, came in at 989,000 tons, a decline of 5% y-o-y, while domestic consumption skyrocketed to 531,000 tons. Information regarding production and exports for 2022 and the latter months of 2023 remains undisclosed.
UMMC, the Russian Copper Company (RMK), and Nornickel are the major players in Russian copper production.
Unraveling the Cause of Decline
Analysts pinpoint the recent drop in copper prices to a combination of slower industrial growth in China and the U.S. Federal Reserve’s stringent monetary policies, resulting in a robust dollar and sinking commodity prices. The slump in copper prices traditionally serves as a bellwether for the global economy, hinting at potential recession fears.
Despite the present challenges, experts are optimistic about a rebound. Producers have been expanding copper mining projects, anticipating a rise in demand. The ICSG reports that from January to July 2023, there was a surplus of refined copper in the global market, standing at 215,000 tons.
While some forecast the copper price to hover around the $8,000/t mark in 2023 and fluctuate between $7,500 and $9,500/t in 2024, others predict a swift recovery by the end of this year.
Russian Producers’ Silver Lining
While the global copper market faces challenges, Russian producers have a buffer – the weakening of the ruble against the dollar. Since December of the previous year, the dollar’s exchange rate surged by 42% to 99.68 rubles. This factor, experts agree, can counterbalance the fall in copper prices for Russian producers.
However, Russia’s newly-introduced flexible export duties, pegged to the dollar exchange rate, might diminish these benefits. Yet, according to analysts, Russian copper producers remain in a robust position, thanks to their high operating margins, even amidst escalating costs.