Base Metals

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A production disruption at Freeport-McMoRan’s Grasberg copper mine, the second-largest in the world, pushed prices higher this week.

Copper prices hit a three-week high on Thursday (May 25), supported by supply concerns caused by a production disruption at Freeport-McMoRan’s (NYSE:FCX) Grasberg copper mine, the second-largest in the world.
A union representing an estimated 9,000 workers has extended a strike at the mine for a second month due to an ongoing dispute over employment terms and layoffs. Freeport said 4,000 of them are now “deemed to have resigned” as they have not come to work after multiple summons.
Grasberg was hit earlier this year with another stoppage due to a dispute over its export permit with the Indonesian government; it lost two-thirds of its production during a 15-week disruption.
In an effort to ramp up production and reduce costs, the company cut around 10 percent of its Indonesian workforce. Despite disciplinary warnings from Freeport, workers then began a 30-day strike to try to get the jobs reinstated. Tri Puspital, Freeport Indonesia’s union industrial relations officer, told Reuters that the strike has halved Grasberg’s output.
On Thursday, LME copper ended up 0.7 percent, at $5,723 a tonne, after earlier touching $5,768.50, its highest level since May 3.


However, even as copper supply issues increase, concerns about weaker demand from China, the world’s largest copper consumer, are impacting prices. On Wednesday (May 24), Moody’s (NYSE:MCO) downgraded China’s credit rating for the first time in 30 years, bumping its debt down to A1 from Aa3.
The move by Moody’s adds to worries about the effect of a slowdown in the country’s economic growth, Simona Gambarini, an analyst at Capital Economics, told Bloomberg. China has also recently seen downbeat manufacturing readings and weak commodity imports.
Recent efforts to rein in credit will have a gradual impact on demand for metals like copper as the government scales back investments, particularly in infrastructure projects, Gambarini said. “The economy is not going to plummet, but we’re likely to see a gradual decline in growth to avoid credit getting out of hand,” she added.
The Asian country accounts for nearly half of global copper demand. This year it will require an estimated 23 million tonnes.
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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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