- "China's GDP may slip a bit - to 6.3% perhaps - but that rate of growth in such a large economy still means a lot more of everything (in tonnage terms) is consumed,"
- China's "One Belt, One Road" (OBOR) project - an estimated $5 trillion infrastructure project that connects 60-plus countries throughout the Eurasian region - is one of the final big pushes on the infrastructure front and is being hailed as a once-in-a-century opportunity for the entire commodities industry.
http://www.metalbulletin.com/events/articles/3783068/2018-preview-mounting-deficit-labor-negotiations-to-spark-copper.html?utm_source=EMB0616_31st+Intl+Copper_YH&utm_medium=email+marketing&utm_content=Attend+an+event&utm_campaign=C7J0087E0024&utm_term=Read+the+article2018 PREVIEW: Mounting deficit, labor negotiations to spark copper
Copper was one of the biggest winners of 2017; the catalysts that fueled that rally are reappearing this year.
A scorching Chinese property market, extended outages at some of the world's largest copper mines and upbeat global growth prospects all led to the unexpected rally to its highest price since August 2014 high in mid-October.
And those exact same bullish arguments remain for this year; whether prices will continue to soar could be determined in this quarter.
Last year, a strike at Escondida, the world's largest copper mine, lasted for 44 days. The growing disconnect between meager bonuses and recovering prices led to union frustrations, which eventually spread to neighboring country Peru. The strikes were initially not expected to last more than a couple days but the extended impasse wrong-footed the entire market.
Due to the lengthy contract dispute, Chilean output hit a six-year low, which forced the entire market into a minor deficit, according to the International Copper Study Group (ICSG).
It also set the stage for an extended deficit until the end of the decade, with the Portugal-based group forecasting a 150,000-tonne deficit in 2017 and one of 105,000 tonnes in 2018.
In 2018, there are 40 various labor contracts up for negotiation - including at Escondida once again - representing 4 million tonnes of mining production and around 700,000 tonnes of refined production.
And new Chilean employment laws favoring unions will only ratchet up the tension, according to Commerzbank.
"Heading into next year, a case can be made for a relatively higher trading range for copper compared to what we saw in 2017," INTL FCStone analyst Edward Meir also said.
"The first variable that should help the market next year is the fact that there will be a series of key labor negotiations that could potentially impact a substantial amount of metal," Meir added.
But nothing replaces what China does next year - the country accounts for roughly 50% of global consumption. Over the past few years, China has pumped billions in loose money into the financial system to avoid a downturn as the world's most populous country transitions towards a service-oriented economy and away from one predicated on infrastructure projects.
Even with GDP growth dipping below 7% per year, the Chinese economy is quickly approaching the United States as the world's largest economy.
China's "One Belt, One Road" (OBOR) project - an estimated $5 trillion infrastructure project that connects 60-plus countries throughout the Eurasian region - is one of the final big pushes on the infrastructure front and is being hailed as a once-in-a-century opportunity for the entire commodities industry.
"China's GDP may slip a bit - to 6.3% perhaps - but that rate of growth in such a large economy still means a lot more of everything (in tonnage terms) is consumed," INTL Metal Bulletin senior analyst William Adams said.
"It may cause some nervous markets and risk-off moments but the bull market in metals I think will power ahead in 2018," Adams added, also saying that he would not be surprised if prices hit $8,500 per tonne.
It seems like the market is in line with Adams' thinking, with Comex copper prices rallying for 13 consecutive days at the end of 2017 ahead of the Christmas holiday weekend.
Whether copper premiums recover globally is unknown but a key indicator will be the level of stocks in warehouses worldwide. In the United States, copper premiums are little changed and spot market activity has been muted.
Still, market participants are hopeful that, after a weak 2017, market volatility will return, with consumers growing more confident as the year progresses.
"It definitely will be a little more interesting on the spot side but not in the first quarter [of 2018]," a US-based supplier said.
Dalton Barker
dalton.barker@metalbulletin.com
Published 04 January 2018
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