Pressure on copper prices unlikely to last as labour disputes kick in

Copper prices came under pressure this week but are unlikely to continue declining as a long-simmering labour dispute in one of the largest copper-producing jurisdictions moves up a notch.

While copper prices did decline this week the sell-off was not intrinsically related to metals markets. Instead, investors, particularly institutional investors, pulled out from most of the metals and commodities markets after US stock markets saw one of the biggest daily declines this year, with the three main US indices losing between 2%-2.5% on Tuesday.

A stronger dollar, several weak company reports and the so-called Balloon Gate (the bringing down of Chinese surveillance balloons over US territory) all contributed to the sell-off, the latter fuelling fears that the already imperfect trade relationship between the US and China will become even worse.

Most metals prices briefly flirted with their support levels, including copper, which just about held up at $8,904 a tonne, not far from the current support level at $8,879/t. Resistance is at $9,222.

Significantly, although the US stock markets painted a negative picture this week the wider global macro-economic backdrop is beginning to improve, particularly in China and Europe, which will be significant for copper over the coming months.

When China started relaxing its Covid restrictions earlier this year copper prices rallied above $9,000/t for the first time in six months, fuelled by expectations that Chinese demand will regain some of its famous growth seen in pre-Covid years. During the tight Covid regime prices of key industrial metals declined by almost 15%.

Separately, the International Energy Agency and OPEC have both said this week they expect higher oil demand in 2023, fitting into a picture of improved consumption later this year.

First Quantum Minerals Panama dispute

But the decline in copper prices is unlikely to become anything more than a dip given that the production in Panama is currently under threat.

Canadian copper miner First Quantum Minerals TSX:FM and Panama’s government have been at loggerheads over tax and royalties and the overhanging threat of operations closures has supported copper prices throughout this period. Most of the global copper is produced in Chile and Peru, followed by China, and while Panama is a much smaller producer it still accounts fora noticeable portion of global output.

On its own, the dispute might not be as significant but it comes at a time when a political crisis in Peru has already led to closures of mines, particularly the large Chinese-owned Las Bambas mine. After months of blockades and protests, Las Bambas stopped production on 1 February. According to estimates from the National Society of Mining, Petroleum and Energy, some 30% of Peru’s copper supply, or around 2.4 million tonnes of copper per year, is currently at risk.

First Quantum suspended its ore processing operations at its local unit Minera Panama this week and started partially demobilising its workforce of over 8,000 employees. The move comes in response to Panama’s maritime authority blocking Minera Panama’s loading operations and the exports from the Cobre Panama copper mine and as well as to a government order for the mine to stop operations.

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