A Year of Few Natural Disasters Shatters Hopes for Copper Bulls

  • Supply disruptions running at lowest rate in at least a decade
  • Copper prices sink 7.3% in May after three months of gains

Earthquakes, landslides and strikes drive copper prices up and down in a normal year. 2016 is turning out to be anything but normal.

Only 124,000 metric tons of copper, or 1.8 percent of production, has been lost this year to bad weather, labor disputes, equipment failures and low prices, according to Macquarie Group Ltd. If the rest of 2016 stays as quiet, the disruption rate will be the lowest since at least 2004, the bank estimates.

That’s bad news for copper bulls that counted on supply disruptions boosting prices in the face of slower demand from top consumer China. Fewer problems mean that the metal will likely resume declines, according to Barclays Plc, which predicts a market surplus.

“The fact that we’ve seen very few disruptions gives you easier momentum to move down at a quicker pace,” Dane Davis, an analyst at Barclays in New York, said by phone. “It’s still been a relatively quiet, well-supplied market.”  

There haven’t been major earthquakes in Chile, the world’s biggest source of copper. Weather also seems to be "quieter" this year and fewer labor contracts are up for renewal, reducing the chance of disputes, according to Barclays.

Copper for delivery in three months has fallen 7.3 percent in May as declining imports from China, the stronger dollar and weak U.S. economic data added to demand concerns. The losses are coming after prices rallied at the beginning of the year, sending the metal to a four-month high in March.

Copper has a reputation among metals for being difficult to mine. Strikes at some of the world’s biggest sites in Chile, falling ore grades and China’s economic boom elevated prices to a record $10,190 a ton in 2011.

Since then, copper has plunged more than 50 percent. China’s construction markets cooled, leading to a build up of stockpiles after years of investment to increase production for Asia’s rapidly growing economies.

April rains in northern Chile and an equipment failure at Freeport McMoRan Inc.’s Indonesian mine lowered some output. Still, producers haven’t cut enough supplies and instead focused on slashing costs, according to Barclays. Production will exceed demand through 2020 as miners boost output, the bank said.

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