Copper Posts Biggest Gain in Almost Four Years

Copper for delivery in three months climbed 4.6% to settle at $6,090 a metric ton on LME

Copper prices at the London Metal Exchange (LME) posted its biggest gain in almost four years on February 10th, 2017, kicking off a surge in the prices of other metals, after exports from China jumped and BHP Billiton Ltd (NYSE: BHP) halted shipments from Escondida, the world’s largest copper mine. Silver neared the longest string of weekly gains since 2011 and mining stocks rose. Overseas shipments from China, the top industrial-metals user, rebounded in January 2017 with exports to the US rising, according to China’s Customs General Administration.

An index of the six main metals traded on the LME surged to their highest since 2012, helped by bets on improving global economic growth and mounting supply concerns for some metals. Signs of easing trade tensions between the US and China also helped boost metal prices on February 10th, 2017.

Copper for delivery in three months climbed 4.6% to settle at $6,090 a metric ton on the LME on February 10th, 2017, the biggest gain since May 2013. Aluminum, lead, nickel, tin and zinc also advanced on the LME. An index of 18 base-metal producers climbed as much as 3.4%, with shares of Freeport-McMoRan Inc. and Rio Tinto PLC among the biggest increases. Spot silver headed for a seventh straight weekly gain, the longest rally since March 2011.

BHP faced with labor unrest at Escondida

Workers at BHP’s majority-owned Minera Escondida copper mine in Chile went on strike on February 09th, 2017, putting pressure on the country’s sluggish economy and copper prices over fears of shortages. The strike at Escondida follows unsuccessful talks between the union and management for a new collective agreement. Escondida, which accounts for about 5% of the metal’s global output, said that it would halt operations during the strike to ensure safety.

BHP, which operates and owns a 58% stake in Escondida, said last month that the mine was expected to turn out 1.1 million tons of copper during the 12-month period that ends on June 30th, 2017. Rio Tinto PLC and Japan’s Mitsubishi Corp. have minority interest in Escondida. Escondida accounts for about 19% of Chile’s production of copper, the country’s top export earner.

Copper prices increased in the days leading up to the strike on concerns about the global supply of the metal. On Thursday, February 09th, 2017, the three-month copper price on the LME was up 0.05% at $5,870.50 per metric ton. Wage negotiations are planned this year at several other mines in Chile, raising the possibility of more disputes. Those mines account for about 12% of expected global copper production for 2017.

China copper exports surge ahead of trade friction

Exports of unwrought copper and copper products from China rebounded in January 2017, with exports to the US rising, just as it braces for potential trade frictions under the new Trump administration. China’s January 2017 copper exports rose 7.9% Y-o-Y, the fastest pace in almost two years, in dollar terms. Specifically, China’s exports to the US rose 9% in dollar terms. Imports surged 16.7%, resulting in a trade surplus of $51.4 billion. China’s exports gained 15.9% in local currency terms.

Trump, who has accused China of unfair trade practices, is assembling a cabinet that includes critics of the world’s largest exporter. Policy makers are now surveying Chinese companies this month to evaluate the potential impact should the US label the nation a currency manipulator and imposes punitive tariffs. Rising demand from Asia and Europe may help counter risk from the US for Chinese exports in the near term.

China under pressure to remove export duties

In recent months, China has been under pressure from the US and other countries to remove export duties on certain minerals that give it an unfair trade advantage. When China joined the World Trade Organization (WTO) in 2001, it had agreed to remove duties ranging from 5% to 20% on antimony, cobalt, copper, graphite, lead, magnesia, talc, tantalum, and tin. However, over the years, China has failed to remove export duties, saying that they are in tandem with WTO rules. However, these export duties make the minerals cheaper in China and more expensive when exported, putting foreign buyers at a disadvantage, as reported by The Wall Street Journal. With Chinese copper exports to the US surging 9% in dollar terms, it remains to be seen whether the Trump administration will impose protectionist measures to curb these exports in the coming months.

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