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China’s Economy Isn’t the Only Thing Affecting Copper Prices

China’s Economy Isn’t the Only Thing Affecting Copper Prices

by Jim Williams

One of the hot topics at last week’s largest copper conference wasn’t about the economy in China. Instead, the majority of the conversation centered on Labor Talks with mining companies in South America.

Reuters picks up the story by reporting that miners in the copper industry are facing the largest round of contract negotiations since 2011, as workers are not scaling back demands in light of low copper prices.

“I think people are assuming with the change in the market, it’s going to automatically mean unions will be more flexible,” said Juan Carlos Guajardo, executive director of Santiago-based mining consulting firm Plusmining. “But it could be a very tough situation.”

“There’s a tendency to dramatize by saying prices are low … But the (mines) are still profitable,” Jorge Juarez, the secretary general of the Sutracomasa trade union, told Reuters.

By historic standards, prices around $6,000 per ton are not low, Juarez points out in the Reuters article. Ten years ago, prices were around $3,500 per ton.

The Other Side of the Coin…

“Contract negotiations are particularly important this year,” Dane Davis, commodities market analyst at Barclays, said at the annual copper conference in Santiago last week. “If we see disruptions, it could push the market into deficit and produce a strong driver to prices.”

Copper has recently climbed back to about the $6,000 per ton plateau after dropping almost 10 percent earlier this year, although, the market is still a little depressed because of lower growth than expected in China, which accounts for 40 percent of global copper demand.

Analysts disagree on when the tide will turn for copper. Some predict demand will outpace supply by the end of 2015, while others don’t see a deficit happening until at least 2017. The good news in either scenario, most all of the experts believe the price of copper will increase over the long haul.

Copper Price ForecastFrom Metal Miner (written by Taras Berezowsky)

After the huge drop during the second half of last year, we believe that there is no point in freaking out over copper’s recent two-month rally. Picking bottoms is very hard and definitely not a good strategy for metal buyers. Was February the bottom of copper’s bearish market? Nobody knows. Since 2011, we do know that trying to guess the bottom is a terrible strategy to take with copper. Prices keep falling from trough to trough…to trough.

On the fundamentals side, we don’t see any game-changing factor that could drive a significant upturn in copper prices. The market remains far from a deficit and the macroeconomic outlook from China looks poor. Copper demand lacks momentum.

Now, with the fundamentals picture dormant, at best, can we expect copper prices to rise above last year’s levels? That seems very unlikely. Especially while a strong dollar and low oil prices are having a depressing effect on commodities, and many other base metals are making record lows.

Before copper is ready to turn around, we’ll have to see more price strength and changes in the demand outlook for commodity markets. Both need to turn upward. We believe that the last four years gave copper buyers reasons enough to wait for real signs of strength before making large volume commitments.

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