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Copper prices were propelled to a five-week high as better-than-expected business and consumer confidence data overshadowed European debt concerns.
By Leia Michele Toovey-Exclusive to Copper Investing News
The Institute for Supply Management-Chicago’s business barometer jumped to 62.5 in November, the highest reading in seven months, and a whole two points higher than October’s reading. In addition, the Conference Board’s consumer confidence index rose to 54.1 in November, from a revised 49.9 in October.
Copper’s most actively traded contract for March delivery, touched $3.8290 per pound, up 1.63 percent on the Comex division of the New York Mercantile Exchange. Benchmark copper for three-month delivery CMCU3 on the London Metal Exchange closed at $8,360 a tonne from $8,220 at the close on Monday. The metal peaked earlier in the day at $8,408, its highest in a week.
Before the string of positive data was released from the U.S., copper slumped in the face of a softening Euro. Overnight, concerns in the EU-zone became readily apparent as credit-default swaps on Portuguese, Spanish and Italian five-year sovereign debt widened to record levels. These credit-default swaps allow investors to ensure against default. The Euro hit a Tuesday session low of $1.2974 at 8.35 a.m. in New York.
A strong Greenback should, in theory steer international currency holders away from dollar-based copper. However, in addition to the optimistic data released out of the U.S.; tightening copper market fundamentals are more than compensating for the strong greenback.
Copper prices should expect a bull-run over the next few years as analysts claim the market faces a “looming deficit.” According to researcher GFMS Ltd., copper will exceed $11,000 a metric tonne by 2013 due to shortages. This is a 33 percent gain from the red metal’s current price.
The move to the surplus will not necessarily be a smooth one, the market may move back into surplus supply in the first half of next year as economies slow, before returning to shortages in the following six months and thereafter, GFMS said in their report. Over the following years, the gap between supply and demand will widen; with refined copper production estimated to expand at 3.4 percent through 2013; while demand out of China alone will grow by 6.0 percent in the same time period. Part of the reason for the gap is the fact that when the recession hit, many miners scaled back their expansion plans.
Supplies will trail demand by 1 million metric tonnes in the next two years, according to UniCredit SpA. LME copper stocks have fallen steadily since February, and are currently down 800 tonnes to 355,750 tonnes.
Bracing for Strikes
Chile’s major copper mines are focusing on contingency plans in effort to resist the ongoing strikes, and keep operations running. By having a sufficient back-up plan that will keep operations moving forward, these mines will have more bargaining power over the workers, who seem to stage frequent walk-outs. .Ample stockpiles and quick deployment of temporary workers allowed the world’s No. 3 copper mine, Collahuasi, to meet export commitments in a 26-day walkout that now equals the longest among Chile’s major private copper operations. This June, state-run miner Codelco and its unionized workers will undergo scheduled contract negotiations. Not only will these contingency plans help settle market anxiety in the event of a strike, Codelco believes that they will help the company have an extra edge when it comes to these contract negotiations..
The recent strike at Collahuasi resulted in lost output of around 6,000 tonnes of copper or one percent annual output. The last major strike, at Escondida in 2006 halved production and pushed it into force majeure. Part of the reason why the current strike has not had the same effect as the 2006 Escondida walkout, is that fact that Collahuasi likely stockpiled copper at the mine before the strike was in full force. The current strike is now as long as the infamous 2006 lockout. Collahuasi’s management on Tuesday resumed talks with union leaders in the northern city of Iquique in efforts to end the strike. The contingency planning has spurred unions to strengthen their own actions by recruiting union leaders of other companies and even other industry to threaten actions alongside them.