Cochilco Sees Copper Prices Rising on Possible Supply Disruptions

- January 17th, 2018

Chile’s state copper commission has upped its copper price forecast for 2018, citing potential supply stoppages and Chinese regulations.

Cochilco, Chile’s state copper commission, has upped its copper price forecast for 2018 to $3.06 per pound from its previous $2.95 estimate, citing potential global supply disruptions.
Cochilco Vice President Sergio Hernandez pointed to a “perception of vulnerability,” attributing it to the large number of anticipated labor negotiations in Chile, the world’s top copper producer, and in neighboring Peru.
“There are between 20 and 25 collective negotiations expected [locally]. If some of them lead to significant strikes that would have a positive impact on prices,” Hernandez added.

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Last year, a historic 43-day-long strike took place at Chile’s Escondida, the world’s largest copper mine, due to labor negotiations between workers and BHP Billiton (ASX:BHP,NYSE:BHP,LSE:BLT).
Indonesia’s Grasberg, the second-largest copper mine, also suffered stoppages due to permit issues and a smelter strike. These disruptions reduced global production by 5 to 7 percent in Q1 2017, and Cochilco believes there is potential for further supply constraints this year.
Another factor that will support higher prices in 2018 is new Chinese environmental regulations on smelters and scrap import restrictions by the Asian country, Hernandez said.
With all those catalysts in mind, Cochilco predicts a global copper supply deficit of 175,000 tonnes in 2018 — more than 60 percent higher than the 67,000-tonne deficit seen last year.
In terms of Chile’s copper output, the state agency expects the country to produce 5.74 million tonnes this year, up 4.9 percent from 2017. In 2019, production is estimated to increase to 5.9 million tonnes.
Cochilco is not the only entity calling for higher copper prices this year, with many analysts expecting copper to continue its uptrend in the next 12 months.
Thomson Reuters GFMS base metals analyst Karen Norton recently said she expects prices to pick up again in the latter part of 2018 and into 2019, but “that may come sooner if concerns over the looming supply deficit override ‘shorter-term’ fundamentals.”
Meanwhile, firms polled by FocusEconomics estimate that the average copper price for Q1 2018 will be $6,651. The most bullish forecast for the quarter comes from ABN Amro (AMS:ABN), which is calling for a price of $7,205; meanwhile, BBVA Research is the most bearish with a forecast of $6,239.
On Wednesday, LME copper closed 0.6 percent down, at $7,034 a tonne, after falling by 1.8 percent on Tuesday (January 16).
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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