Copper fell in September for the first time in 5 months. You can see the recent strength in Copper in the chart below. Check out the recent post on Copper’s weakness.
The fall in copper prices has been due to rising COVID-19 cases and falling expected global demand for copper. Furthermore, recent mine output data is now showing that production levels are ramping up again. According to Bloomberg Intelligence Analysts reports copper mining output is set to rise 3.5% from 2021 to 2023 after a fall of almost 3% in 2020. This is based on the individual forecasts for 127 mines covering around 80% of the global industry. A key quote from that report is that ‘While growth on a sequential basis tails off as each successive year passes, the market’s ability to digest this new supply will be put to the test quickly’. In other words, will demand meet this new supply level? If COVID-19 cases keep rising then demand should fall and with it, copper prices should remain pressured. The one factor that can still keep copper prices rising is if Chinese demand keeps up.
However, stockpiles are increasing. Last week LME Copper stockpiles hit two-month highs. Copper inventories tracked by the London Metal Exchange jumped by 33,200 tons to 136,325 tons. This put copper inventories at their highest last week since late July.
Strike risk from Escondida
Another area to watch for short term copper sellers is if there is a strike in the world’s largest copper mine, Escondida, which located in Northern Chile.
The latest news last Friday was that Union members have rejected Escondida’s final offer in wage talks. The BHP owned operation has now requested a five day mediation period. These talks could easily be extended from here. However, a shutdown in the mine could offer copper some near term support.
The big picture for copper remains bullish as green technology is going to be heavily dependent on copper. Once global growth gets back on track you would expect copper further gains. However, for now, it is reasonable to expect sellers on pullbacks for the short term.