For a little while there it looked as if copper was going to give up its US$3 handle on global trade fears, a stronger US dollar, and something to do with Italy.
But here we are a week into June and the red metal has rallied 6% to $US3.25/lb.
Short-covering on fears that BHP’s Escondida mine in Chile, the world’s number one producer, could be hit by strike action are being offered up as the main factor.
Maybe so. But a longer term take on the market suggests that copper’s ability to comfortably hold above US$3/lb has more to do with bullish fundamental supply/demand factors – which have not changed.
Strike action at Escondida might juice things up for a while, or be a dampener if, in fact, there is no strike. It’s much better for the investor to look through the daily noise to the bigger picture of copper moving into deficit supply in the coming years.
OZ Minerals chief executive Andrew Cole was on hand yesterday at the Melbourne Mining Club to give his view of the copper market in light of its recent run-up – one that has carried the metal to a 3-month high.
He too is firmly in the camp of there being no change in the fundamentals for copper. “I personally don’t think the fundamentals have changed in years,” he said. “The supply/demand curves . . . have not changed year-on-year.’’
“(But) what is changing is that we are getting much closer to the gap between supply coming through, and the demand. That gap – depending on whether you follow Wood Mackenzie or CRU – is imminent,’’ Cole told the assembled throng.
“The fundamentals are strong for two primary reasons. One is that finding new copper mines is expensive, and it’s rhard. And this sector has under-invested in copper exploration for a very long time.’’
He said the problem was that there isn’t a ready-made portfolio of new copper projects ready to be built by the industry. “There just isn’t one.’’
OZ itself has the Carrapateena copper-gold mine development underway in South Australia and a bid on the table for ASX-listed Brazilian copper producer/developer Avanco (ASX: AVB). It also has expansion/extension opportunities at its current mainstay operation in SA, Prominent Hill, and the yet-to-be built Carrapateena.
Plus Rex Minerals seeks $5m to reinvigorate Hillside. Read more +
