By Jim Williams
Copper has bounced around in early trading this week as investors are keeping an eye on East Asia.
The most recent show of force between the U.S. and North Korea has markets around the world watching. The tension has bled through into the base metals world as well, causing a slightly negative effect on copper in overseas trading.
That downward trend is expected to be outweighed by positive numbers out of China, brightening prospects for base metals in the otherwise gloomy macroeconomic scenario.
China's economy grew 6.9 percent in the first quarter from a year earlier, slightly faster than expected, while Industrial production rose 7.6 percent in March, the highest level since the end of 2014. Plus, new home prices gained last month in 62 of the 70 cities tracked by the government, compared with 56 in February.
"There is still some uncertainty in the market about geopolitical issues, and there is some risk aversion at this stage," ABN Amro analyst Casper Burgering said. "A small deficit in copper is expected this year, and demand is very good... but that hasn't benefited the metal."
Copper consultant company CRU is projecting copper prices to trend up over the next three to four years. A statement released this week by CRU's director of copper research, Vanessa Davidson, said, "We expect pressure on costs to continue... but we see copper prices rising faster than operating costs, ensuring that profit margins increase."
Industry executives at a meeting in Chile this week agree, but they predict any recovery will be a slow one. "The market seems to have left behind its worst moment, although it's very premature to anticipate a new cycle of high prices," Chilean Mining Minister Aurora Williams told the conference.
Arnaud Soirat, copper and diamonds unit chief at Rio Tinto added that copper prices could receive support from external factors, including pending mine closures and ore grade decline.
"Copper's long-term fundamentals are quite positive, and we expect to see further demand growth from emerging markets," he told Reuters, forecasting a small deficit this year.
This prediction comes as one of the world's largest copper mines just came back online — with Freeport's Grasberg, Indonesia operation finalizing paperwork to resume concentrate exports, after a 12-week standoff with the government.
But just as that mine restarts, another major operation appears to be going offline.
Reportedly, 2,200 workers at Southern Copper's Toquepala mine in Peru walked out of work yesterday. Southern Copper management announced that production has not yet been affected.
That could change in the next few days as union leaders say more workers plan to join the strike late this week. They also said they would block train tracks, to prevent rail service to and from the facility.
This sets the stage for another copper supply disruption like the 43-day strike that ended last month at the Escondida mine in Chile, as well as the 21-day stoppage that hit Freeport's Cerro Verde mine in Peru during March.
Worker demands at Toquepala are similar to both of those cases - union workers asking for a larger share of profits — in addition to improvements in health care and paid leave.
Output from Toquepala isn't as big as either Cerro Verde or Escondida — currently running at about 60,000 tons per day of ore processing, as compared to 360,000 tons a day for Cerro Verde. But Southern Copper is in the middle of a $1.2 billion upgrade to the mine, to double its output to 120,000 tons a day.
We will keep an eye on the events of the world impacting copper and report it here every week.