Copper tried and failed once again to break $2.70, a strong area of resistance for the red metal (JJC,CUPM,CPER). This week saw a focus on both possible and definite copper supply changes. Workers at Escondida, the world's biggest mine, rejected the latest wage offer and are now set to vote on a prolonged strike. Escondida's wage agreements can have a multiplicative effect on the industry as it's contracts set the standard for many around the world.
Elsewhere, it appears Indonesia is unlikely to pass special conditions that would allow copper miners to export concentrate. A ban was supposed to come into effect this year, with the intention to force producers to refine copper within Indonesian borders. The copper industry has generally been slow to respond due to the low copper price, and it will be interesting to see how the government plays this out. The uncertainty in production has been reflected in Rio-Tinto's (NYSE:RIO) wide production guidance, representing over $1-billion in uncertain revenues.Commitment Of Traders Money Managers
Net copper positions amongst money managers reached new highs, as wepredicted in the our last edition of copper weekly. Momentum is growing around the supply-demand imbalance equation, and as the inertia continues to shift from bear to bull story, copper is expected to break through the $2.70 barrier in the near term.
LME Inventories
Copper inventories maintained the slow decline over the past few weeks. Interestingly, cancellations are not extremely high which could signal a closer balance between supply and demand.
Takeaway
The next few weeks will be volatile ones for copper. And, while outages in Indonesia and Chile are not required to keep the copper price moving, it would certainly provide a quick boost. Furthermore, the eventual contract that Escondida workers make with their employers will set the stage for copper agreements elsewhere. The arguments that both sides have will focus on two things: copper pricing over the last years and expected copper prices to come. Copper prices were markedly higher the last times the two sides met at the bargaining table, but the prospects for copper in the coming years are anything but ordinary. Falling copper grades, and a severe lack of shovel-ready projects could send copper skyrocketing, and a strong labor agreement both enriches the workers and slows the growth of supply - arguably a win-win (although I doubt Escondida's managers see it that way)