Copper Sees Improved Sentiment on Supply Issues

The copper price is still under $3 per pound, but the red metal continues to slowly creep upward as supply issues pop up. 

On Tuesday, the metal gained just over 1 percent to reach $2.76 per pound. Copper has been around that level since March 20, and has gained 11.74 percent since hitting a multi-year low in January.

To be sure, copper still has its fair share of troubles — slow demand from China is keeping some cautious. Still, there have already been a number of disruptions caused by floods, mechanical failures and other issues that have some market watchers thinking twice about their bearish predictions for copper this year.

For instance, BHP Billiton (NYSE:BHP,ASX:BHP,LSE:BLT) cut its production forecast for Olympic Dam following an electrical failure at its Svedala mill in February, while a road block near Freeport-McMoRan’s (NYSE:FCX) Grasberg mine caused the miner to temporarily halt production in late March.

Most recently, devastating floods in Chile caused several miners to put a hold on production. Some of the mines affected included Lundin Mining’s (TSX:LUN) Candelaria mine, Barrick Gold’s (TSX:ABX) Zaldivar and Codelco’s Salvador.

Furthermore, according to Reuters, the country’s state copper commission, Cochilco, lowered its production forecast from 6 million tonnes to 5.94 million tonnes this week. The change was due to problems caused by an ongoing drought in the region in addition to the recent floods. “There is an effect, albeit of low significance, from operations temporarily halted (mostly Codelco’s Salvador and JX Nippon’s Caserones) due to the heavy rains,” said Cochilco in a statement.

According to The Wall Street Journal, those problems are causing some investors to turn bullish on copper. Daniel Belchers, a commodities fund manager at London’s Columbia Threadneedle, told the Journal that his fund previously invested less than suggested in copper, but has become bullish in recent weeks. “With all of these mines now coming off or having a lot less production than we were expecting, we will be in a deficit market this year,” he said. 

Similarly, Cormark Securities has said that it’s staying bullish on copper in the long term, while Macquarie previously upgraded the base metals sector from “neutral” to “overweight,” citing copper supply and demand fundamentals as a key driver behind that decision.

Of course, not all predictions are positive. Jeremy Baker of the Vontobel Belvista Commodity Fund in Zurich told the Journal that “there is a risk that copper could drift lower again” on worries over China’s economic outlook. Still, base metals investors will no doubt be encouraged by some of the positive sentiment surrounding the metal, and will be watching for further updates on the outlook for global copper supply and demand.

Company news

Over the weekend, Mongolian Prime Minister Saikhanbileg Chimed announced that the government has come to an “agreement, in principle” with Rio Tinto (NYSE:RIO,ASX:RIO,LSE:RIO) regarding an expansion at the company’s Oyu Tolgoi mine in Mongolia. The share price of Turqoise Hill Resources (TSX:TRQ), which is majority owned by Rio, has risen approximately 10 percent since the announcement, while Entrée Gold (TSX:ETG), which also has a stake in the project, has seen its share price gain about 50 percent.

On Tuesday, Lundin Mining announced maiden reserve estimates for two new orebodies recently discovered at its Candelaria mine in Chile. The new Susana and Damiana deposits consist of 14.9 million tonnes of proven and probable reserves at average grades of more than 1 percent copper, and it is anticipated that these reserves will be accessed from existing and new portals from the open-pit mine at the project.

Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.