Copper Prices, MMI Up As Supply Disruptions Bring Upside Potential

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Includes: BDD, BDG, BOM, BOS, CPER, CUPM, DBB, FOIL, HEVY, JJC, JJM, JJN, JJT, JJU, LD, LEDD, NINI, RJZ, UBM
by: MetalMiner

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By Raul de Frutos

Copper prices rebounded to a 6% increase in January. The combination of a falling dollar and a potential work stoppage at the world’s largest copper mine lifted prices to test the psychological level of $6,000 per metric ton.

Base metals looked more bullish in January and strong Chinese data is no doubt driving that. China’s PMI was in growth territory for the seventh consecutive month. Here in the U.S., President Donald Trump signed executive orders to continue progress on two key energy pipelines, making good on his campaign pledge to rebuild the nation’s infrastructure.The new president also broke with protocol and expressed a desire for a weaker dollar.

Trump’s words helped drive the value of the dollar down in January. This gave a boost to industrial metal prices and dollar-denominated commodities such as crude oil, which continues to remain supported above $50 per barrel.

Escondida Strike: New Catalysis?

Even though copper markets are still in surplus, investors know that copper is a very slow business in terms of new project development. Consequently, even if prices continue to rise enough to incentivize new developments, it will take a long time for that new supply to hit the market.

Supply concerns have recently risen due to a potential strike in the giant Escondida copper mine in Chile. Last week, the mine’s workers voted against the company’s latest wage offer, opening the door for a strike and potentially setting the case for wage negotiations across the industry since almost a fifth of global mine capacity is facing contract renewals.

This is the largest copper mine in the world, supplying 5% of the world’s copper production. The potential stoppage at Escondida coincides with an interruption to supplies from Indonesia’s Grasberg, the world’s second-biggest mine where exports of concentrate have been halted.

What This Means For Metal Buyers

Copper prices might look expensive compared to what they were just three months ago. However, that rally might just be the beginning of a bigger move. Sentiment in the industrial metal complex remains quite bullish and there are factors currently playing out that could build the case for another rally in copper prices. Copper buyers should minimize their commodity price risk exposure accordingly.

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