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BHP Cuts – How Deep Will It Impact Copper?

BHP Cuts – How Deep Will It Impact Copper?

By Jim Williams

Mining giant BHP is making waves in the commodities world. In a meeting with investors in Australia, BHP announced it plans to deliver a total of $2.2 billion in productivity gains across its Australian mining operations over the next two years.
While the biggest impact will be with their iron ore mining, the ripple effect from the announcement ‘down under’ will likely touch the global copper industry. BHP points to a shortage of copper concentrates after several disruptions at mines and the potential for work stoppages in Chile and Peru this year – several are expected to carry over into 2018 – as well as changes to China’s scrap import regulations.

In their report, BHP forecasts an additional 700,000 tons of copper concentrate will be produced between now and 2020, while China is expected to add 1.5 million tons of copper capacity in that same time period.

“There just doesn’t seem like enough copper concentrate to go around,” BHP Vice President of Marketing, Minerals Vicky Binns told investors on the call.

According to Reuters, China’s expected import ban on a type of assembled copper scrap could lead to a “leakage” of around 100,000 tons of copper in 2018 and more than double that in 2019.

“China will be faced with a shortage for copper concentrates and a shortage of imported scrap, so it will need to provide for its growth in demand by importing more blister, anode and cathode and that is good for cathode premiums and for the copper price overall,” adds Binns.

China’s Economic Impact

Looking at the current price of copper, the red metal took a hit to start the week thanks to subpar news out of China. A report released Monday showed China’s industrial profits rose 25.1% year on year in October. That is lower than the 27.7% jump in September.

The slowing in growth triggered investors’ concerns about the outlook for Chinese economic growth, spurring further selling. Investors will now turn their attention to Chinese manufacturing purchasing managers’ index (PMI) data due on Thursday (see event list below).

Finishing 2017 and Looking Ahead to 2018

Frequent contributor, Andrew Hecht chimes in with his thoughts on the near-term outlook for commodities in general,

“The stock market at all-time highs. Interest rates are at levels that are close to historical lows and starting to rise. The dollar weakening against other world currencies, and the geopolitical landscape that is nothing short of a minefield of potential problems. 2018 promises to be a very interesting year packed with opportunities in the commodities markets.”

Hecht mentioned a weaker dollar. Investors point to that as one of the key factors responsible for pushing copper prices up almost 27% this year. We will hear more of Hecht’s thoughts on the red metal in our first copper article of 2018.

This year isn’t over yet. There are still a lot of things that can impact the markets, specifically the price of copper. The upcoming ‘changing of the guard’ at the Federal Reserve being one thing expected to be the most watched. There are a number of Fed speakers, including outgoing Chair Janet Yellen, lined up this week and into December as the world waits to see what happens here in the U.S.

Here is our final look ahead for 2017, thanks to www.Investing.com‘s list of significant events likely to affect the markets:

Tuesday, November 28
The Bank of England is to publish its financial stability report.
Canada is to report on raw material price inflation.
The U.S. is to release data on consumer confidence.
Fed governor Jerome Powell, selected by President Donald Trump as the next Fed chair, appears before the Senate Banking Committee for his confirmation hearing.
Philadelphia Fed President Patrick Harker is to speak.
Bank of Canada Governor Stephen Poloz is to speak at an event in Ottawa.
The Reserve Bank of New Zealand is to publish its financial stability report.

Wednesday, November 29
Germany is to release preliminary data on inflation.
The UK is to publish data on net lending.
The U.S. is to release revised data on third quarter growth.
New York Fed President William Dudley is to speak.
Fed Chair Janet Yellen is to testify on the U.S. economic outlook before Joint Economic Committee of Congress, in Washington.
The U.S. is to release data on pending home sales.

Thursday, November 30
New Zealand is to release data on business confidence.
Australia is to publish figures on private capital expenditure and building approvals.
China is to produce report on manufacturing and service sector growth.
The euro zone is to publish its preliminary inflation estimate.
The U.S. is to release data on personal income and consumer spending, which includes the personal consumption expenditures (PCE) inflation data, the Fed’s preferred metric for inflation.
The U.S. is also to publish the weekly report on jobless claims and data on business activity in the Chicago region.
Dallas Fed President Robert Kaplan is to speak.

Friday, December 1
China is to publish its Caixin manufacturing index.
The UK is to publish its manufacturing index.
Canada is to publish data on economic growth and employment.
Dallas Fed President Robert Kaplan and Philadelphia Fed President Patrick Harker are to speak.
The Institute for Supply Management is to publish its manufacturing index.

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