Copper: Another week, another strike
Carsten Menke, Commodities Research Analyst, Julius Baer
As the global copper community gathers at this week’s World Copper Conference in Chile, bullish sentiment is fuelled by repeated talk of a tightening market. However, there are no signs of tightness at the current point in time. Exchange-held inventories are close to the highest levels in more than a decade, physical premiums remain weak and scrap discounts have widened. That said, supply growth is projected to slow significantly over the coming years, leaving the market much more vulnerable to supply disruptions. Following the end of two recent strikes in Chile and Peru, another one is looming. Workers at two other medium-sized Peruvian mines threaten to down their tools, demanding a greater share of profits despite an existing wage agreement. Copper reacted positively to the news with prices up as much as 3 per cent yesterday, also supported by headlines of a new economic zone being established in China. To what extent this will have a positive impact on the demand for industrial metals remains to be seen. China is not short of manufacturing capacity and hence the positive impact on metals demand should be limited to the development of infrastructure. Overall, we remain of the opinion that too much has been priced into copper, both in terms of demand growth and supply disruption expectations. Hence, we remain bearish and stick to our short position in September 2017 copper futures.
The outlook for slowing supply growth and the risk of supply disruptions fuel bullish copper sentiment. While the risks should not be dismissed, we remain of the opinion that too much has been priced into copper, both in terms of demand growth and supply disruption expectations. We remain bearish and stick to our short position.