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Political unrest, labor issues and natural disasters playing a role in the price of copper

By Jim Williams

Early reports this week show a slight upswing in the price of copper. The price continues to rise while sentiment over Chinese development remains unclear. One expert believes the recent unsteady fluctuation of prices is a result of two key sources and a possible wild card yet to be dealt.

Michael Turek, Senior Director and Head of Metals Desk at Newedge says the Chinese and the Chairman of the Federal Reserve have put the market under pressure. “Chinese authorities have sent signals that they have in the past bolstered the entire system and made sure that there were not great financial fractures,” states Turek. “But about a week and a half ago they let a large industrial company go and that sent shock waves through the market.

“Maybe they are prepared to take some short-term pain and skim some speculative froth, but in so doing they may have to sacrifice some economic growth for that. Of course they would say they can accomplish both.”

Turek also points to recently appointed Federal Reserve Chairman Janet Yellen’s comments last week about recent higher interest rates causing a trickle-down effect on commodity and depressing the price of copper. “These two major sources, major confluences of influence, occurred around the same time putting the market under pressure. We’ve since bounced a little bit from the lows, we’ve had some reasonable consumer sentiment numbers come out of Europe and the States.”

The one wild card causing a lot of uncertainty in the market and around the world is the political unrest in the Ukraine. Turek points to Russian president Vladimir Putin. “Mr. Putin would by the look of it like to reestablish his old Soviet Union,” claims Turek. “He certainly wants the bread basket in the naval ports in the area. But we don’t know yet how that is going to play out so that’s creating a lot of uncertainty in the market.

“One sense is, for now at least, we probably put in the lows – which was about $200 lower than they are now – and left to its own devices, the market will likely respond to the improved economic data that we are beginning to see even in Europe. But there are a few factors that we can’t data for and that includes Mr. Putin. So, if you’re asking me do I think the reaction to the down side is a little bit overdone, yes, I think it is,” concludes Turek.

Nature and labor issues should also be considered when tracking the price of copper. Late last week the world’s top copper producer, Codelco, announced production had fallen to five-year lows after news that a strike disrupted operations at a mine in Chile. At the same time last week, a few earthquakes shook things up in several mining-rich areas in Chile. None of which appears to have done significant damage.

Next week we will focus on the impact China has on the world’s copper industry.

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