copper price

Last year, investors were wondering whether copper was worth more than $6,000 per metric ton or not.

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Late in 2016, prices were struggling to overcome this psychological level, but things are shaping up for 2017 to be a hot year for copper production, which could translate into a hot year for the copper price.

Upside momentum for copper prices picked up on supply disruptions. Copper rises above $6,000 per metric ton. Source: MetalMiner analysis of FastMarkets.com data.

Escondida Stops Production

Chile’s massive Escondida mine’s processing plants completely stopped supplying refined copper to markets on Thursday as no miners arrived for morning work. The mine produced around 1 million mt of copper last year, or 5% of global production.  Read more

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Copper prices have been on the rise and could continue their ascent if the world’s two biggest copper mines continue their strike.

According to a recent report from CNBC, copper futures contracts for March delivery grew by more than 1.5% this week following information that BHP Billiton is halting production at the world’s largest copper mine, Escondida, located in Chile.

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“It’s presenting the market with a bullish case for a little upside, Vivienne Lloyd, base metals analyst for Macquarie in London, told the news source.

Copper prices were already on the ascent, growing more than 30% last fall with the U.S. dollar weakening close to the election, combined with traders’ more optimistic views on China.

“Traders were already bullish into the strike, Dane Davis, commodities research analyst at Barclays, said. “People have watched the negotiations deteriorate.”

Copper Disruptions Bring Upside Potential

Our own Raul de Frutos wrote just this week on the factor the copper mine strikes will play in the metal’s recent bull run. He added:

“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.”

Raul concluded: “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.”

How will copper and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

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.

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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.

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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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We posted a review of the copper market last week. It called out alternative views on the balance of supply and demand and the resulting direction for prices this year.

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One of the caveats in the post was the possibility of supply disruption in 2017 returning to the more historical norm of 5% of supply from last year’s unusually stable 3.5%. No sooner was our review posted, then reports came out that wage negotiations at the Escondida mine in northern Chile appear to be taking a turn for the worse.

What’s Happening at Escondida?

Escondida is 57% owned and operated by Anglo Australian giant BHP Billiton, with Rio Tinto Group holding a 30% stake. It was thought at current prices BHP was making enough to agree an early settlement, but a report in the Telegraph newspaper suggests that negotiations are breaking down as both parties’ positions polarize. Miners are rejecting BHP’s current offer and the negotiations look likely to go to government arbitration before a strike can be called.

In their defense, BHP say copper prices are still lower than they were at the time the current deal was struck with unions and sources close to the company point out that Escondida workers are still paid well above the national average, but that is unlikely to have much impact on the miners union’s demands.

What’s This Mean for Copper Prices?

Neighboring miner Antofagasta, which has operations not far from Escondida, reported a strong finish to the year, with 2016 production up 12.5% over 2015. Copper production surged 13.8% in the fourth quarter versus the previous three months, while costs fell, rather undermining Escondida’s argument that it can’t afford to pay any more.

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With wage negotiations looming at Canadian operations in coming months the fear is Escondida could spark off a wave of strikes and supply disruptions. Although opinions vary, many estimate the copper market is close to supply-demand balance, so supply threats are having a disproportionate impact on all prices and creating considerable volatility. Escondida may be the first of this year’s wage negotiations, but it won’t be the last making price prediction particularly difficult in the months ahead.

Copper prices had a spectacular run back in November. So spectacular than no one expected it but us. Ever since, most analysts have questioned the sustainability of this copper rally. Their argument: prices have run ahead of fundamentals.

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I have a different opinion on this. The fact that copper prices have held well after such a run is a sign of strength. It suggests that investors are holding onto copper despite the gains. The profit-taking over the past two months was very constructive and now that prices have rested, it seems like investors are just waiting for some new information before sending prices to the roof again.

3-Month LME copper price. Source: MetalMiner analysis of Fastmarkets.com data.

Other than copper’s price action, there are many reasons to believe another price rally might be around the corner.

The base metals are looking more bullish as we move into February and strong Chinese data is no doubt driving that. President Donald Trump recently signed executive orders to continue progress on two key energy pipelines, making good on his campaign pledge to rebuild the nation’s infrastructure. In addition, energy prices continue to remain supported with crude oil persistently trading 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. The International Copper Study Group (ICSG) is forecasting zero growth in mine supply this year.

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Supply concerns have recently risen due to a potential strike in the giant Escondida copper mine in Chile. This is the largest copper mine in the world, supplying 5% of the world’s copper production. Disruptions of this scale can influence copper prices. Moreover, it may set the case for wage negotiations across the industry that could lift costs for copper miners.

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.

The copper market has been sending mixed messages for the last year and the start of 2017 is no different. Consumers had gotten used to lower prices and the narrative of new mine investment swamping lackluster demand growth, only to be surprised on the upside last year by strong demand – both physical and speculative – out of China.

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As Andy Home of Reuters commented this week, maybe more surprising was the lack of supply disruption. Usually the copper market can expect something like 5% of annual production to be disrupted by labor disputes, bad weather, government interference, power outages or simply falling ore grades impacting production, but 2017 saw a low level of unscheduled production losses, in the region of 3.5%, and yet copper prices continued to rise.

Where is Demand Really at?

Demand on the other hand has also surprised on the upside, according to HSBC demand in top consumer China last year was stronger than anticipated due to a greater government stimulus impact on the power grid investments and higher end use demand, particularly for appliances and consumer goods. A tax incentive on small cars boosted Chinese auto sales in 2016 and since the government extended the initiative to 2017 at slightly higher tax rate (7.5% vs 5% in 2016) this stimulus is thought likely to continue. Read more

Our January MMI report saw almost universal price pull backs in December, but that’s to be expected in a bull market with active investors.

The monthly MetalMiner IndX showed only moderate (less than 4%) price falls, even though they were visible across almost all the sub-indexes.

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The price prospects for most of the metals we track remain strong and we have already seen some renewed price increases since we initially published our sub-index reports starting on the first of the year.

The Chinese economy and the strong dollar continue to power the metals bull market… at least for now. Happy new metals year!

Set of copper pipes of different diameter lying in one heap

Copper prices increased last week on the heels of Chinese data indicating inflation growth, reassuring strong demand from the world’s largest consumer of the metal.

According to a report from MarketWatch, copper for March delivery grew 2.9% on the Comex division of the New York Mercantile Exchange last Tuesday, which was the largest one-day increase in nearly two months.

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“The 2017 growth rate was supported (by) much faster than expected project ramp ups in Peru in particular, and much lower than statistically normal rates of production losses through the year,” Citi wrote, according to the news source. “We believe both of these factors will be difficult to replicate in 2017.”

Overall, a weaker dollar was supporting metals and, in the short-term, a reduction in copper stocks in LME warehouses indicates a tighter market, which could further boost prices.

Copper Bounces Back from December

Our own Raul de Frutos wrote recently that copper prices declined some in December, along with other industrial metals, but the bull narrative is still in effect:

“The recent price decline in copper prices wasn’t that dramatic. So far, it seems like the bulls are still in control. A strong dollar and a possible slowdown in Chinese demand are factors that could bring prices down. Up until now, China’s demand looks strong and the dollar hasn’t had a big impact on metal prices. Therefore, we need actual reasons to turn bearish on copper,” he wrote.

How will copper and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Copper prices retraced in December. After the huge price run in November we were expecting to see some profit taking as prices need to digest gains.

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So far, the decline has been limited, with prices holding above $5,500/mt. Although copper has lost some of its post-election gains, it still managed to end 2016 with decent yearly gains, suggesting that sellers are not totally in control.

Copper’s Bullish Narrative

One of the key factors supporting copper prices is the earlier-than-expected supply deficit. While most analysts were previously projecting the copper markets to move into deficit by the end of the decade, many of them are now expecting a deficit as early as this year.

Another factor supporting copper prices is higher energy prices. Oil prices, the main benchmark for energy prices, regained the $50/barrel level in December. Saudi Arabia said it could be ready to cut output more than originally agreed upon at the latest Organization of Petroleum Exporting Countries meeting. Non-OPEC countries, including Russia, also agreed to an output cut north of 500,000 barrels a day. Energy is key in the metals industry. For copper, energy can form almost 20% of the production costs.

President-elect Donald Trump’s proposed infrastructure investments are also positive for copper prices. However, in our view, the key demand driver continues to be China, by far the largest consumer of the red metal. China’s Caixin manufacturing purchasing managers’ index rose to 51.9 in December from 50.9 in November and beat market expectations. That figure marked the sixth straight month of growth and the strongest upturn in Chinese manufacturing conditions since January 2013.

What Could Add Pressure to Copper Prices

The better-than-expected demand from China explains the ongoing strength in industrial metal prices. However, there are concerns that the country’s demand growth rates could slow next year. The real estate and automotive sectors are the engine propelling this rapid growth. If the demand growth from these sectors slows, this could have strong repercussions on China’s demand for industrial metals.

Another factor to watch is the ongoing strength of the U.S. dollar. Copper is no different than other commodities that have a negative correlation to the dollar. Further appreciation of the dollar could negatively impact copper prices. Higher interest rates in the U.S. are among the factors contributing to a stronger dollar. In December, The Federal Reserve raised interest rates by a quarter point, as expected, but policymakers signaled a likelihood of three increases in 2017, up from prior expectations of two moves.

What This Means For Metal Buyers

The recent price decline in copper prices wasn’t that dramatic. So far, it seems like the bulls are still in control. A strong dollar and a possible slowdown in Chinese demand are factors that could bring prices down. Up until now, China’s demand looks strong and the dollar hasn’t had a big impact on metal prices. Therefore, we need actual reasons to turn bearish on copper.

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I get it, you are thinking of what you are going to get your family for Christmas. However, Santa is bringing you good opportunities to buy some metals. Don’t miss them.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

Base metals entered a bull market earlier this year. The real driver of this bull market has been the stronger-than-expected Chinese demand. Markets underestimated Beijing’s determination not to disappoint on its growth numbers. Thanks to the country’s increase in infrastructure spending, industrial metal prices are getting a tailwind.

The metals rally particularly extended in November. However, prices don’t just move in a straight line. If they move up quickly, buyers are tempted to take their profits until markets digest those gains. This is normal price action and why we normally see prices moving in a zig-zag. In the second half of December, there’s already been some profit taking and as prices pull back, buyers can find good opportunities to time some purchases. Let’s take a few examples:

Copper

Copper prices could find support soon

Copper prices could find support soon. Source: MetalMiner analysis of Fastmartkets.com.

Almost no analyst was bullish on copper prior to this rally, but it seems that the market now sees the possibility of a market deficit next year as almost no supply is due to come on-stream while demand seems robust. Read more