Copper appears to be caught in the crosswinds.
After months of steady declines from a peak of U.S. $6,600 per ton in April, the copper price had drifted down to well below $6,000 per ton on fears of what impact the ongoing trade war between the U.S. and China would have on top consumer China.
But while trade war tensions continue to provide significant headwinds, an extending strike at Codelco’s Chuquicamata copper mine is raising concerns about supply.
The copper market is considered to be in deficit, according to Reuters, saying the global refined copper market showed a deficit of 51,000 metric tons in March, compared with a 72,000-ton surplus in February. Bloomberg cited the International Copper Study Group, which forecast a deficit of 189,000 tons by the end of this year.
Codelco’s strike has been rumbling on for 12 days now. Chuquicamata is the company’s third-largest mine, producing 321,000 metric tons last year (so over 10,000 tons have been lost so far).
Some 3,200 workers at the mine are represented by three unions. Their grievance is focused on comparable terms of employment between retiring older workers and incoming new workers. The company is holding back on the more generous terms older workers enjoy as they negotiate the severance of some 1,700 workers due to the transition from open pit to underground mine in the next 12 months.
So far, Codelco says it has made the best offer it can.
Workers, however, are not satisfied.
Negotiations are at an impasse. The union is going back to the workers later this week for an extension to the strike. In and of itself, the loss of Chuquicamata’s production is not critical for the copper market, but it heightens concerns about where supply is going to come from, as investment in new mines has been depressed for some years by excess supply and low prices.
Perversely, though, inventory has been rising.
Both the LME and SHFE have seen increases in stocks this year, although they have fallen somewhat in the last month or so. Generally, inventory levels do not suggest a market in crisis.
So, what can we make of the recent price rises: are they purely a reaction to the Chuquicamata strike and a weaker dollar boost to commodity prices, or the buildup for a move higher?
Demand, while less robust than previous years, remains fairly solid. Much of the negativity is down to fears over the trade conflict between the U.S. and China, as is the case with much of the commodity and equity markets; a resolution to that squabble would see a return of optimism and higher prices.
Without it, though, it is hard to see significant upside to copper this year — the fundamentals are not supporting that yet. In the meantime, sentiment is king.