Copper MMI: LME copper prices slide ahead of Fed rate hike

Copper prices rebounded sharply after declines in early May. While prices continue to find a bottom on a macro scale, they remain sideways in the short term. As a result, copper has been unable to establish a clear direction, either bullish or bearish.
The Copper Monthly Metals Index (MMI) fell by 2.89% month over month.

Copper prices fall 4.3% ahead of 0.75% rate hike issued by Fed

The anticipated 0.75% interest rate hike came to fruition on Wednesday. The hike marks the largest since 1994 as the Fed attempts to restrain rising, persistent inflation that hit 8.6% in May. Prior to the latest CPI data, markets expected another half-percentage-point hike followed from previous Fed meetings. In its June 15 press release, the Fed also indicated that it anticipates “ongoing increases in the target range will be appropriate.”
Ahead of its formal announcement, markets expectedly began to price in the Fed’s latest move. Copper prices saw an overall 4.3% sell-off during the week prior. Despite this, copper prices began to form a bottom on short timeframes following the press release. Nonetheless, prices sit substantially beneath their early March peak. The larger trend appears decidedly bearish. 
Ignore the noise. Spot the trend. Related article: The Art of Timing Your Metal Buy 

Indecision, division await vote on Chile’s new constitution

Chile awaits the completion of a new constitution. The constitutional assembly already voted to reject plans to nationalize key parts of its mining sector. However, if adopted, the new constitution will veer the country sharply left as it expands social rights and environmental protections. This will also create a National Health Service, include reparations related to historically Indigenous land and eliminate the Senate from the bicameral congress to create a Chamber of Regions instead.  

Copper
Adobe Stock, 2022

Revisions began on May 14 with the final draft slated for completion on July 4.  The document then enters a referendum. Chilean voters can either approve or reject the new constitution on Sep. 4 as decided by a simple majority.
While the path toward a new constitution began with 80% of the vote in the 2020 plebiscite, approval of the document remains far from certain.  According to a poll by the Center for Public Studies (CEP), respondents that would approve, reject or remain undecided stood at 25%, 27% and 37%, respectively. The remaining 11% either declined to answer or did not know. No clear path exists should voters reject the constitution come September. The poll also indicated should such a scenario play out, 42% of respondents favored a new draft, 31% favored a revision and 15% wanted the current constitution to remain unchanged. Polling reported by the Guardian, however, suggests support for such reform could wane. According to that data, 46% of respondents indicated intent to reject the latest draft while 38% approved.
All copper buying organizations need to closely follow these developments as Chile accounts for over 33% of global copper supply.
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Impact on copper

While the present draft managed to circumvent radical plans related to copper mining, the sector would see an impact should citizens approve the new constitution. Of note, article 25 requires miners to designate “resources to repair damage” to the environment from the negative effects of mining. The constitution will also include a ban on mining in glaciers and areas essential to protect Chile’s water system. 
According to an interview with Antofagasta CEO Iván Arriagada, most of the company’s current concerns relate to uncertainty of if a shift will occur come September. Depending on the final terms, adoption of the constitution could likely impact long-term investments for the company. Concern over the restriction of private water rights within the new constitution, however, remains largely overstated. The mining industry largely veered toward the use of seawater to operate facilities and will continue to move in that direction. 
The mining sector accounts for roughly 11% of Chile’s GDP. According to Chile’s Centre for Copper and Mining Studies (Cesco), a lack of exploitation of mineral resources would threaten Chile’s overall wealth by 20-25%. Although many of the social reforms remain popular among citizens, threats to mining investment could weigh down the initial widespread calls for reform. Should Chilean citizens approve the new constitution, limits to and additional price pressures on the mining industry would inevitably filter down to global copper prices.
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Actual metals prices and trends

  • The LME three-month copper price fell by 3.18% month-over-month to $9,510 per metric ton as of June 1.
  • Chinese copper bar declined by 4.18% to $10,679 per metric ton. Chinese copper scrap fell by 6.69% to $9,323 per metric ton. 
  • US copper producer grades 110 and 122 decreased by 1.85% to $5.29 per pound. Producer grade 102 fell by 1.78% to $5.51 per pound.

 

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