Copper Jolted Higher as Threatened Disruptions Point to Deficit

  • Goldman Sachs, Barclays, UBS see potential for prices to climb
  • Supply slowdowns looming at world’s two biggest copper mines

Copper rallied with other metals as strengthening prospects of disruptions at the world’s two largest mines threatened to send the market into a global shortage.

“We expect copper will move into deficit in the coming months, driving the next leg higher in prices,” Goldman Sachs Group Inc. analysts including Max Layton and Jeff Currie said in a report Wednesday. While the bank’s six-month target remains at $6,200 a metric ton, risks surrounding the forecast are skewed to the upside, they said.

Copper for delivery in three months advanced 1.7 percent to settle at $5,895 a metric ton at 5:50 p.m. in London on Wednesday, as all other major industrial metals and gold rose.

Copper has surged by more than 25 percent in the past year amid sustained demand from China and the anticipation of higher infrastructure spending and tax cuts from U.S. President Donald Trump. Prospects for supply disruptions at BHP Billiton Ltd.’s Escondida in Chile and Freeport-McMoRan Inc.’s Grasberg in Indonesia increase the potential for prices to continue rising.

“Last year we could have been in a balanced situation,” Jean-Sebastien Jacques, chief executive officer of Rio Tinto Group, told reporters Wednesday in London after the world’s second-biggest mining company reported underlying 2016 profit that beat analysts’ estimates. “I could see easily a scenario where you have a deficit or are short in 2017.”

Escondida Threat

Goldman said that while there are concerns about monetary tightening in China, the moves have been small and are in the context of a credit boom. The acceleration in demand from the metals-intensive industries of the old economy because of strong credit growth will help create a shortage in the copper market, according to the bank. A deficit this year would be the first since 2011, says Citigroup Inc.

Workers at Escondida vowed to start an indefinite strike starting Thursday as talks with BHP failed to produce an agreement following weeks of collective bargaining. In Indonesia, exports of unprocessed copper from Freeport’s mine in Papua province have halted as the company negotiates with the government on the terms under which it operates in the country.

Freeport may start curbing production if the ban on concentrate shipments continues. “We have a limited amount of storage space and we would need to take steps no later than mid-February,” Chief Executive Officer Richard Adkerson said on a conference call last month.

Barclays Plc has forecast a surplus of 39,000 tons this year, assuming 5 percent of worldwide primary production of 20.7 million tons is lost to disruptions. A stoppage at Escondida would remove about 24,000 tons a week, potentially pushing the market into a deficit, the bank said last week.

UBS Group AG sees supply disruptions increasing in 2017 from last year and forecasts prices to average about $6,600 a ton, according to Sydney-based analyst Daniel Morgan. Citigroup sees a global shortage of 59,000 tons this year.

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