The Conversation (0)
Despite supply concerns impacting copper availability, economic growth concerns are heavier handed, pushing the red metal to its lowest price in two weeks.
Commenting on the performance of metals lately is H. Fraser Phillips, analyst with RBC Capital Markets in Toronto who explained today in a note that “Poor global economic growth prospects are weighing” on metals prices. “Significant excess inventories have accumulated, and capacity utilization rates are well below full effect levels, pointing to a poor commodity pricing environment.” The firm is anticipating an average price of $3.40 per pound of copper for 2013.
Also holding copper prices back this week are comments from the U.S. Federal Reserve which are raising worries that the central bank might be scaling back on its stimulus package. Along with economic concerns, investors likely pulled out of copper on Thursday in wait of Friday’s U.S. job growth figures, hoping for an an indication of where the economy is headed. Should the numbers point to persisting economic doldrums, investors can rest easy as it is unlikely that the Fed will make any changes to its monetary easing program.
Supply concerns abound
As copper suffers on one end from depressing economic figures, it is finding some solace in a slew of supply concerns that are supporting prices to a certain extent. Operations at several copper smelters in China and a couple of copper mines — Freeport McMoRan’s (NYSE:FCX) Grasberg operations, Rio Tinto’s (NYSE:RIO) Bingham Canyon mine in the U.S. — have halted sparking concerns on metal supply in the future.
As Copper Investing News reported last week, several Chinese smelters closed their doors recently. The most recent development comes from the Jinchuan Group, who declared force majeure at its copper plant. The declaration comes after the plant experienced an equipment failure which is expected to cut supply by half over the next few months. According to the Wall Street Journal, Jinchuan contributes roughly 40,000 to 50,000 tons of refined copper per month. With the glitch in place, the smelter is likely to produce only 20,000 tons of material.
Jinchuan may have to look to supply customers with materials taken China’s bonded warehouses, or London Metals Exchange sheds, which could increase China’s import numbers.
Despite having restarted production last week, Freeport’s Grasberg mine has once again closed its doors and will not be able to resume production until a government probe has completed its investigation. The copper mine shutdown again last Friday, after another worker was killed following a security breach. The mine could remain closed for up to three months.
A stoppage of three months is surely to impact Freeport’s abilities to meet its obligations. Grasberg produces roughly 220,000 tonnes of concentrate per day and a three-month suspension could potential remove 125,000 tonnes of copper from the market.
Speaking with Mineweb, analyst Dan Smith from Standard Chartered in London said: “It’s definitely a big deal. These disruptions are adding up.”
Glencore Xstrata
It seems that Glencore Xstrata could be giving the $110 million dollar expansion project at a New South Wales mine the ax after dismissing the contractor. The expansion plan would be aimed at lowering production costs at the Cobar mine via sinking the mine shaft deeper. However the commodities giant fired the contractor it hired to expand the project. So far, no decision on the mine has been solidified.
Company news
Highland Copper Company (TSXV:HI) released drill results from holes completed at the G-2 chalcocite prospect in Michigan. The results returned some high grade intersections including 7.7 meters of 3.14% copper and 7.4 meters of 3.08 % copper.
Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned.