Copper: Supply disruptions an ongoing theme while demand gradually slows - NAB

The analysis team at NAB notes that copper prices have declined over the quarter, sitting at around $5700/t, down from the peak of around $6100/t in February as the bullish sentiment following the US elections last year has abated somewhat, while the few major supply disruptions that provided support to prices in early 2017 have also been resolved. 

Key Quotes

“A six-week strike at Escondida, the world’s biggest copper mine, ended in late March. Output was down 60% in the March quarter, with operations returning to full capacity in April. Strikes at Southern Copper’s Peruvian mines and refinery were also resolved in two weeks, with limited supply disruptions as the company used temporary workers to maintain production. Freeport  resumed exports in late April from its Grasberg mine in Indonesia, after being suspended by the government since mid January. However, union workers started a strike on 1st May over job security, which could last until the end of June. Output may have been reduced by half, as estimated by a union official.”

“Supply disruptions in the copper markets due to worker strikes or weather conditions will remain an ongoing theme, as workers dispute contracts previously settled during a period of low prices and low profitability and now demand improved working conditions and better job security. This trend could see concentrates supply decline and provide support to prices, but has been largely expected and priced in.”

“On the demand side, indicators continue to point to an easing in Chinese growth. Policies to control the housing market and the transition towards the services industries will see demand continue to gradually slow. Potential infrastructure spending in the US could improve demand, however little details have been revealed to date.”

“Overall, we forecast a largely balanced market  for 2017 and a small surplus in 2018, with  prices averaging  $5720/t.”