Shutdowns at Biggest Mines Extend Copper’s Best Rally in 5 Years

Updated on
  • Freeport suspended copper concentrate output at Grasberg
  • Copper jumped 5.5% last week amid a strike at BHP’s Escondida

Copper's 'Perfect Storm' Explained by Ira Epstein

Copper is extending the best start to a year since 2012 after the world’s two biggest mines halted some operations.

The metal has rallied 11 percent this year, helped ongoing problems at Freeport-McMoRan Inc.’s Grasberg complex in Indonesia and BHP Billiton Ltd.’s Escondida mine in Chile. Futures for March delivery climbed 0.5 percent to $2.783 a pound at 1:18 p.m. on the Comex in New York, after earlier touching $2.823, the highest since May 2015.

“Copper’s been leading the way, but everything’s moved higher in a broad allocation back into metals,” Robin Bhar, an analyst at Societe Generale SA, said by phone from London. “We’ve had supply-side concerns which have boosted the market no end.”

Freeport-McMoRan suspended copper concentrate output at its giant Grasberg complex in Indonesia as the company continues to negotiate with the government over the terms of its mining permit.

Local unit PT Freeport Indonesia halted output at its copper mill Friday, Tri Puspital, a member of the industrial relations department at Grasberg’s labor union, said by phone Monday. The shutdown came after Freeport ran out of space to store copper that has been backing up at the site since last month, when its permit to export expired.

Read more about Freeport’s copper concentrate suspension at Grasberg.

An indefinite strike at BHP Billiton’s Escondida mine in Chile has also led the company to stop production and declare force majeure on its shipments. Over the weekend, a group of more than 300 people entered the mine site during the strike and forced some contractors to abandon the compound, BHP said.

“After the force majeure at Escondida on Friday, the market took off like a rocket,” Bhar said.

A 20-day stoppage at Escondida and a one-month delay to exports at Grasberg would result in an output loss of almost 100,000 tons, including 64,000 tons from the Chilean mine, Goldman Sachs Group Inc. said a note dated Feb. 8.

Macquarie Group Ltd. expects the BHP strike to last up to three weeks, London-based analyst Vivienne Lloyd said by e-mail. The dispute at Grasberg could be tougher to resolve, she said.

Copper rallied 5.5 percent last week in London and ranks third this year among the best-performing contracts tracked by the Bloomberg Commodity Index. Gains this year also come amid President Donald Trump’s promise to spend $1 trillion in infrastructure over the next 10 years.

“Definitely if copper output is at all sidelined with the talk about all this new spending in the U.S. and building we’re going to see an extension upwards, it could get pretty ugly,” Phil Streible, a senior market strategist at RJO Futures in Chicago, said in a telephone interview.

Mining stocks also advanced on Monday, with Teck Resources Ltd. gaining more than 3 percent

Money managers who cut their record bullish bet in copper last week missed out on the rally. Hedge funds and other large speculators lowered the net-long position in copper futures and options contracts by 15 percent, the most since October, according to Commodity Futures Trading Commission data released Friday.

In other metals: 

  • Nickel gained 0.7 percent as Sumitomo Metal Mining Co. said the market is heading for a deficit.
    Before it's here, it's on the Bloomberg Terminal.