Copper on course for its strongest year

The beginning of 2018 sees the copper price coming over the top of the top end of its current bull channel and heading into a widely reported growth period expected to continue throughout this year. Prices for the metal employed widely in power and construction rose by around 30 percent in 2017, and the ubiquitous commodity is on course for its strongest year since the immediate recovery period in 2009. Copper’s rise to a four-year high lifted confidence in the markets that 2018 will be another year of robust growth around the world.

Prices have achieved recent highs on the back of a sinking dollar, growing confidence in Chinese demand and enhanced positive sentiment as a result of supply constraints caused, in part, by the Chinese government ordering its top nationalized producer, Jiangxi Copper Company, to cease production for at least one week. Further disruptions are expected this year as China continues its “clear skies” environmental crackdown, via which category 7 (high impurity) scrap will be entirely banned by the end of 2018.

China’s attack on the copper scrap market, particular regarding this low-grade material (termed “foreign garbage” by officials) has already sent tremors through the plastic and paper sectors, but a series of new measures present a serious risk to the flow of scrap to the world’s largest importer. At the very least, this is going to be a serious disruption to the copper supply chain; already, traders have been barred from applying for scrap import licenses. The government stated in December that only end-users and actual copper scrap processors would be considered for import quotas this year.

However, this upheaval could be overshadowed by the myriad of mine labour contracts newly expiring in 2018. Over 30 labour contracts, covering around five million tonnes of mine supply, are due to expire this year, the majority of which are in Chile and Peru. Looming strike action is a great threat to output capacities, especially for the world’s largest producing mine, Escondida, where a 44-day walkout last year ended with zero reconciliation.

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