Copper Weekly: Supply Disruptions Hit And Copper Heads For New Highs

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Includes: BHP, CPER, CUPM, JJC
by: Jesse Moore

Summary

Copper has finally broken through $2.70/lb as Escondida, the world's largest mine, shuts in production.

Citi joins the ranks of copper bulls.

Unplanned supply disruptions (of which many forecasts included very little) are looking to bite much harder than expected as Escondida's union settles in for a long fight.

After many attempts, copper has finally broken through the $2.70 mark with force (JJC, CUPM, CPER). As we alluded to in the last copper weekly report, the world's largest copper mine (majority owned by BHP) has shut down due to a labor strike. This will wipe out 5% of the world's daily copper supply, a move that could quickly balance out a supply/demand equation that is arguably much less than 250,000 tons (3 months of supply from Escondida).

Without a bearish bank left on copper, likely due to their positions shifting from shorts to longs, the copper price has little reason to sit still.

Unplanned supply disruptions could have a multiplicative effect on copper markets. Much of the discussion around supply has centered around the fact that unplanned disruptions have been at all time lows for the preceding 12-24 months, now that we are seeing record outages (as much as 9% of the market at present), a sentiment change would quickly reverse any projections of oversupply.

Commitment Of Traders - Money Managers

Money manager positions as of February 7th remained near all time highs. A position that likely turned even more bullish as news of a shutdown at Escondida whipped through the market.

LME Inventories

Copper inventories stayed on the path of declining inventories, flattening out later in the week. It will be interesting to watch inventories over the coming weeks with nearly 1/10th of copper supply out of commission.

Takeaway

The reality of the copper market is quickly altering bearish views across the world. Money manager positions continue to approach and breach all time highs, and massive supply disruptions are starting to bite. One of the great benefits of the supply disruptions at Escondida, is that we will see how truly close the market is to a supply/demand imbalance. It will give us a peek into the market in 1-2 years when the fundamental decline of the copper market becomes a reality. Over the next few weeks, we could see one of the most exciting periods for copper.

Disclosure: I am/we are long TGS.AX, FND.AX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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