Copper Prices Rise Amid Escondida Mine Strike and US Economic Uncertainty

Strategic Insights -

Copper prices fluctuated Friday, buoyed by production disruptions at the world's largest mine, the Escondida mine in Chile, while weakened US GDP growth weighed on prices earlier in the session. The strike, which began on June 21, has lasted a week and shows no signs of resolution, with the mine's operator, BHP Billiton Ltd., declaring force majeure on copper concentrate shipments. Meanwhile, the US House of Representatives is set to vote on an amended Republican debt-ceiling bill, which has contributed to market uncertainty.

Key Takeaways:

  • Copper futures rose 1 cent, or 0.2%, to settle at $4.4795 a pound on the Comex division of the New York Mercantile Exchange, the highest ending price since April 11.
  • The strike at the Escondida mine, controlled by BHP Billiton Ltd., has lasted a week and is continuing, with no prospect of an early settlement.
  • Increases in copper-mine supply were expected to fall short of growing global demand this year, and the strike at Escondida has helped keep copper prices at historically high levels despite worries about the health of the US and European economies.
  • Chile reported that copper production during the first half of the year was down 2% from 2010 levels.
  • The US economy expanded at a rate of 1.3% during the second quarter, short of economists' expectations for a rise of 1.8%.
  • Copper is sensitive to the growth outlook because of its widespread use in manufacturing and construction.
  • Analysts say copper may be due for a pullback should current supply disruptions ease.
  • Adam Klopfenstein, a senior market strategist with Lind-Waldock, stated that copper looks pricey at $4.50, based on where the global economy is currently.

Statistics:

  • Copper prices rose 1 cent to $4.4795 a pound on the Comex division of the New York Mercantile Exchange.
  • The Escondida mine produced 6.7% of global copper output last year.
  • Copper production in Chile was down 2% from 2010 levels during the first half of the year.
  • The US economy expanded at a rate of 1.3% during the second quarter.
  • Global demand for copper is expected to outstrip increases in copper-mine supply this year.
  • The US House of Representatives is set to vote on an amended Republican debt-ceiling bill on Friday.

Sources:

  • Dow Jones Commodities News via Comtex (July 29, 2011)
  • Dow Jones Newswires (Matt Day, July 29, 2011)
  • Commerzbank (analysts, July 29, 2011)
  • BHP Billiton Ltd. (press release, July 27, 2011)
  • Commerce Department (report, July 29, 2011)
  • Lind-Waldock (Adam Klopfenstein, senior market strategist, July 29, 2011)