With safety issues increasing the likelihood of a work stoppage at Freeport McMoran Copper & Gold Inc.’s Grasberg project in Indonesia, coupled with a strike set to begin Nov. 10 at the Antamina mine in Peru, the probability of a deficit in the copper market has significantly risen.
Estimates suggest that these two labour disruptions could remove 84,000 tonnes of mined copper supply through the end of 2014.
Prices for the base metal have declined approximately 9% so far this year as traders anticipated a market surplus, but Dundee Capital Markets mining analyst David Charles pointed out that this excess metal has yet to materialize.
Meanwhile, China’s demand for power lines and copper used in household goods remains strong, leaving some to forecast a price rally in the latter part of 2015.
“Analysts still struggle with mine disruptions when forecasting demand supply balance in metal markets,” Mr. Charles said in a research note.
The analyst pointed out that the average forecast for copper at the beginning of 2014 was a surplus of 600,000 tonnes. Depending on the outcome of these labour disputes, he noted that the year will likely end with a small surplus of around 70,000 tonnes or a deficit.
“Yes, copper stocks and copper prices are down, but the bearishness is a little extreme in our view,” Mr. Charles said, adding that investors don’t appear to be accounting for the risk of Chilean copper production declining in the next few years due to a lack of investment.
“For sure we would prefer to see supply constraint in copper in 2015 (like zinc), but it’s not as bad as it seems (or the headlines suggest),” he said, recommending Lundin Mining Corp. and First Quantum Minerals Ltd. for copper exposure.