Carsten Menke, commodities research analyst at Julius Baer, comments on supply disruptions in the copper market.
Support from supply disruptions is unlikely to last for copper.
Growing mine production should keep the market well supplied with persistent weakness in China’s property market representing the key downside risk.
We maintain a neutral view.
Supply disruptions are back in focus for the copper market and have pushed prices above $6,000 per tonne.
At the end of March heavy rains hit Chile, the world’s largest copper producer. Output from several mines was hampered and transportation routes were cut.
Lost supply should however be limited as mining companies have gradually resumed operations.
Nevertheless, Chile yesterday announced that this year copper production would be slightly down from initial estimates but still up compared to last year.
Zambia, Africa’s largest copper producer, is meanwhile mulling changes to recently hiked royalty rates after mining companies threated to cut investment and close mines.
Overall, copper mine production should continue growing this year, keeping the market well supplied.
Mining cost deflation is a factor not to be underestimated in the current environment. Producers continue to benefit from low prices for mining consumables such as diesel and steel while those outside the United States receive additional relief from weakening domestic currencies.
Our gauge of marginal producer currencies has fallen to the lowest level in more than a decade and is down almost 20% since the beginning of last year.