Prices for copper futures surged on Wednesday, after workers in the world’s largest copper mine threatened a strike to happen on Thursday.
Copper futures are finding support in Wednesday’s trading session as a strike threat loomed over the Escondida copper mine in Chile by its workers, possibly disrupting production on Thursday. The mine generated 6% of the world’s copper supply in 2015.
Escondida mine workers’ strike
Escondida is majority-controlled by BHP Billiton Ltd (NYSE:BHP), with Rio Tinto DRC (NYSE:RIO) and Japan's Jeco (T:7768) holding stakes as well.
The strike mainly stemmed from issues regarding the world’s largest copper mine’s management over pay. Mediated talks between the workers—the main union at BHP Billiton’s Escondida copper mine— and the management are expected to continue this week.
Previous negotiations between the two parties have not been successful.
BHP, an Australian miner, declined almost 1% after reports said the miner threatened to cease production at the Escondida copper mine in Chile, due to a workers' strike set on Thursday. BHP told reporters it could not assure the safety of the 80 workers the Chilean government had approved to remain at the Escondida mine to perform critical tasks such as equipment maintenance and compliance to environmental procedures.
According to union spokesman Carlos Allendes, the company refused to change its stance.
We understand that there is nothing left to negotiate ... there is nothing left to talk about, we've already talked a lot and we are definitely going on strike.
Copper futures analysis
As of writing, copper futures on the New York Mercantile Exchange (NYMEX) climbed 1.82% to $2.680 a pound, while on the London Metal Exchange (LME), the red metal inched up 1.52% to 5,893.50.
Futures on the LME hit an intraday high of 5,921.47. Today’s resistance level falls on 6,047.92 while support is at 5,712.04. Copper had a strong uptrend at the end of October 2016 until the day after the US elections. During that period, metals were greatly supported by uncertainty on the Federal Reserve, US presidential elections and downbeat US key data [1].
Beginning mid-December 2016 to early January, metals were down as the dollar went broadly stronger, lifted by the Fed’s decision to raise rates and fueled hopes for more interest rate hikes in 2017 [2]. On January 10, metals like gold and copper recovered as the greenback weakened amid uncertainty surrounding the US central bank’s pace of rate hikes [3]. On the same day, prices data out of China, which competes with India as the world's top importer of the yellow metal, offered support and aided the industrial metal copper.
David Lennox, resources analyst at Fat Prophets, stated prices of commodities are currently prone to short-term shocks such as strikes as capital expenditure has been reduced following a sustained and broad-based nosedive across the complex since the summer of 2014.
Projects that were supposed to come on-stream haven't been. That does mean that supply is getting a bit tighter and demand is increasing closer to those supply levels.
Elsewhere, on the Comex division of the NYMEX, silver futures for March delivery slid 0.5%, to $17.66 a troy ounce. Gold futures slipped modestly but remained near its three-month high amid worries over political uncertainty in Europe and economic worries in the US. April delivery for gold dropped 0.2% to $1,222.31 a troy ounce.