Cop­per Price Falls as BHP Says Deal is Reached to Avoid Es­con­dida Strike

Zambian Business Times - - COMMODITIES - Source: Me­talMiner

The break­ing news is that Chile’s Es­con­dida mine op­er­a­tor BHP has an­nounced it looks like a strike has been averted and that a set­tle­ment plan is be­ing put to the work­ers.

That is good news for a mar­ket widely ex­pected to go into deficit this year, ac­cord­ing to Min­

But the prospect of a strike was all that was hold­ing up the cop­per price, which promptly fell 5% on the news, touch­ing a low of $2.55 a pound ($5,622 a met­ric ton) in New York and down more than 20% from a nearly four-year high struck a lit­tle over two months ago, ac­cord­ing to Min­

Pro­duc­tion in the world’s largest cop­per pro­ducer, Chile, has been plagued this year by a num­ber of is­sues ( in ad­di­tion to BHP’s prob­lems).

Com­peti­tor Antofa­gasta an­nounced this week a dis­ap­point­ing set of first-half re­sults. The miner re­ported pro­duc­tion was down 8.5% in the first six months of the year com­pared to last, due to poor ore grades and in­fras­truc­ture is­sues at its big­gest mine. Rev­enue rose on higher prices ear­lier in the year, but prof­itabil­ity still fell 32%.

The cop­per price has taken a beat­ing re­cently on wide­spread fears about global trade and po­lit­i­cal tur­moil in places like Turkey, but a re­cent S&P Global re­port paints a rosy pic­ture for producers re­gard­ing fu­ture prices, say­ing new dis­cov­er­ies are fall­ing way below his­tor­i­cal stan­dards.

Producers have in­creas­ingly fo­cused on de­vel­op­ing their ex­ist­ing re­sources, the re­port states. This may be due to lack of faith in fu­ture prices — the end of the su­per cy­cle, or a more cau­tious post-fi­nan­cial-crash in­vest­ment cli­mate.

Chi­nese growth is slow­ing and producers are more in­clined to max­i­mize ex­ist­ing re­sources than bet the farm on new ex­plo­ration and in­vest in new green­field projects.

S&P re­ports Latin Amer­ica hosts over half of cop­per dis­cov­ered. Chile and Peru alone ac­count for 83% of cop­per dis­cov­ered in Latin Amer­ica and 46% of the global to­tal found since 1990. Of the 139.9 Mt of cop­per con­tained in the 29 dis­cov­er­ies made over the past 10 years, al­most two-thirds is con­tained in the four largest de­posits, S&P re­ports, il­lus­trat­ing the some­what pre­car­i­ous na­ture of the cop­per sup­ply mar­ket.

The pool of projects likely to come to mar­ket over the next decade is lim­ited by the low level of in­vest­ment and the long, up to 20-year lead in from dis­cov­ery to pro­duc­tion. Although prices are cur­rently un­der pres­sure from trade fears and a strong dol­lar, global de­mand has held up well so far, in the re­gion of 2-3% an­nu­ally.

Not sur­pris­ingly, min­ers are flag­ging up sup­ply risks as a big­ger is­sue for the cop­per mar­ket than lack of de­mand.

In the medium term, they are prob­a­bly right. De­spite all the noise about trade fears and tar­iffs, the re­al­ity is global growth and me­tals de­mand has re­mained ro­bust. Con­tem­po­rary de­vel­op­ments are likely to trump medium-term sup­ply risks in the minds of in­vestors. As such, prices are go­ing to re­main sub­dued this year — if not bear­ish, then at least trad­ing side­ways.

How we go next year, though, is an­other mat­ter.

If trade is­sues can be even par­tially re­solved and some de­gree of con­fi­dence re­stored, prices could re­cover; but, for the time be­ing, it is buy as needed.

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