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Copper’s push towards record-highs was stymied Wednesday, as traders took a strengthening greenback as a signal that it was time to take profits.
By Leia Toovey- Exclusive to Copper Investing News
On Tuesday, copper was in close-range to its $4.60 record high price point, touched last February, as the inability of the US government to reach an agreement on lifting the country’s debt ceiling was negative for the dollar, and therefore positive for dollar-denominated copper. The government’s impasse to come to an arrangement over how much to hike the borrowing limit is stoking fears of a default or possible credit downgrade in the world’s largest economy. The looming deadline for an agreement is Aug 2.
On Tuesday, the ICE US Dollar Index was at 73.591 on the COMEX, its lowest value in over a month. On Wednesday, the dollar rose against some major currencies, providing an excuse for traders to cash out their copper positions after a day of gains. The ICE U.S. Dollar Index was recently at 73.691.
Unsuccessful debt negotiations between the House and the Senate were the major push behind copper’s recent ascent, however, supply threats added extra impetus. Workers at Chile’s Escondida mine suddenly stopped work last Thursday, demanding a greater share of the mine’s earnings. The mine’s owner, BHP Billiton (NYSE:BHP) offered workers a discretionary $6,100 bonus to return to work; however, the worker’s union rejected the offer. The union offered to meet with BHP, Tuesday for talks, however, BHP refused to participate. The union’s rejection of a 2.8 million-peso ($6,100) discretionary bonus offer and ensuing “illegal” strike is a “disappointment” and is costing Chile “a lot of money,” said Peter Beaven, head of BHP’s base metals division. Escondida is refusing to talk to workers as long as they continue their strike.
With no resolution in site, analysts are worried that the dispute at Escondida could result in longer-term supply disruptions to an already tight copper market. The strike’s timing comes just ahead of a time when, according to analysts, destocking is about to end, and purchasers will return to market. Destocking of reserves was the main reason Chinese metals import slowed down in the first half this year, according to analysts, who now think that the destocking phase could be wrapping up. “Data for the first half as a whole strongly suggests destocking in a number of the commodities, although the most recent monthly data points suggest this destocking may be coming to an end,” said Macquarie Group in a note. Inventories of copper in LME-registered warehouses were at 469,1000 tonnes on the LME. They remain around a third higher compared to last December. In a Reuters poll, analysts forecast the copper market will be in a 343,150 tonnes deficit in 2011.
Company news
Southern Copper Corp. (NYSE:SCCO) is planning an aggressive expansion plan, aimed at doubling the miner’s copper output by 2015. In 2012, the company plans to increase output by 11 percent to about 700,000 metric tonnes due to improving grades at its Cuajone and Toquepala mines in Peru, and higher output from its Buenavista del Cobre mine in Mexico, according to Chief Executive Oscar González Rocha. Mr. González Rocha said in an interview, that for 2015, the company’s total copper production will be in the order of 1.25 million metric tonnes.
Vancouver-based Quadra FNX Mining Ltd. (TSX:QUX) recently announced that its second-quarter copper production rose 20 percent from the previous quarter at its mines in the United States, Canada and Chile. According to the company, second-quarter copper output rose to 55 million pounds, up from 46 million pounds in the first quarter. Nickel production was flat at 2 million pounds, while precious metal production in the period rose 3.8 percent to 27,000 ounces. The company reported that the rise in copper output was due to improved grades and other successful operational initiatives at its mines. Quadra expects to see a big output boost from its largest mine, the Robinson mine in Nevada, in the latter half of this year as it begins to mine higher grade portions of the deposit. The company will release its quarterly financial results on Aug. 10.