Testing time ahead for copper

AFTER a gentle start to 2018, copper could be in for a rocky few weeks.
Testing time ahead for copper Testing time ahead for copper Testing time ahead for copper Testing time ahead for copper Testing time ahead for copper

Staff Reporter

Barclays analyst Dane Davis said Chinese data arriving in mid-March would set the tone for copper's price for the month as the market waits on demand indications from the world's biggest consumer of the red metal.
"We believe the copper market is at a crossroads, with the next four to six weeks holding particular significance," he said.
"With China broadly maintaining macro momentum into the New Year, there is an open question whether that will be maintained with resumption of industrial activity in March and early April.
"Supply and the ongoing pace of labour contract renewals [in Chile and Peru] are also under scrutiny … for the industry as a whole, labour harmony brings higher supply, a return to mined production growth, and, thus, the potential for weaker prices."
Copper is currently $6909.75 per tonne on the London Metal Exchange and Barclays' forecast for the quarter's average price is $6950/t.
It will drop to an average of $6750/t in the June quarter and then $6400/t for the second half of the year, the bank said.
Davis raised air conditioner production as an important metric for Chinese demand as it takes up 10% of global refined copper supply.
"Domestic production slowed to about 5 million units in December 2017, a 67% year-on-year decline from December 2016 production of 15 million units," he said.
"While this result is overstated, given the 26% year-to-date, year-on-year increase in production of air conditioner units (180 million in 2017 against 160 million in 2016), the trend ahead looks clear.
"A completion of the restocking cycle for air conditioners would be consistent with our forecast of low single-digit copper consumption growth in China for 2018 and is a key swing demand trend to watch."
Davis said miners are less likely to go on strike during upcoming wage and bonus negotiations in Chile and Peru than in previous years because the companies seemed more generous.
"… healthy margins for the industry continuing throughout 2018 means that the probability of labour strikes may be less likely than initially feared," he said, raising recent Codelco, Antofagasta and KGHM wage deals as examples.
The upcoming Escondida negotiations are the main risk to supply, although Davis said both the union and BHP had shown signs of cooperation. 
The Grasberg saga could also trigger price movement, with the Indonesian government optimistically saying it wanted to sign a deal with Freeport-McMoRan by the end of April.