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.
Investors, therefore perceive a potential strike at Chile’s Escondida copper mine as a supply risk. Last week, the mine’s workers voted not to accept the company’s latest offer which means not only a potential strike, but the conditions set the stage for wage negotiations across the industry. In fact, labor contract negotiations face renewal for since almost a fifth of global mine capacity according to a recent Bloomberg article.
This is the largest copper mine in the world, supplying 5% of the world’s copper production. In addition, the second biggest mine, Indonesia’s Grasberg, has also seen supply interruptions.
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.
Actual Copper Prices and Trends
The Japanese copper primary rose 7% to $6,075 per mt. Indian copper prices rose 7% from $5.66 per kilogram to $6.04 per kg. Prices in China rose 5% to $6,910/mt. The three-month London Metal Exchange primary copper finished the month at $5,930/mt up 7% from last month.