Copper is moving on up. Having traded in a comfortable range between $5,600 and $6,000/t for most of January, three-month copper futures have spiked to a 20-month high of $6,153/t on Tuesday because of disruptions at two major global mines.
Both mining and refining have been put on hold at the Escondida mine in Chile, the world’s largest copper mine, while workers’ unions battle it out with BHP Billiton, the majority owner of the mine.
The unions are asking for higher wages, better pensions and other benefits given that copper prices have risen by about $1,400/t over the last year but BHP Billiton is arguing that copper prices are still 25% lower than they were four years ago when the last labour contract was negotiated. According to reports the workers have settled in the Chilean mountains with tents, food supplies and cold weather kit, expecting it to be a protracted dispute.
This on its own would be enough to keep prices higher, but additional operations at the Grasberg mine owned by US miner Freeport McMoran in Indonesia have also ground to a halt over Indonesia’s refusal to extend Freeport’s export licence for copper concentrate. Freeport was locked in a similar dispute with the Indonesian government in 2014 and had to stop exports for six months.
Even before the supply disruptions, copper prices have been slowly moving higher over the last few months and were expected to increase this year at a similar pace to global GDP growth. With the strike and export dispute in place, analysts at major banks are revising their forecasts for copper prices higher for this year.
But a word of caution: a significant portion of this year’s expected price increase has already been accounted for in January and once the Escondida strike is concluded, there could be a quick downward correction. If you are trading copper futures, keep those stops in place.