The Hindu Business Line : Uncertainty in copper market over mine stir

The global copper market is facing uncertainty. Players are anxiously watching developments at Chile's Escondida, where strike by workers that began on Monday is threatening to impact production, and thereby international prices.

Negotiations for pay hikes and bonuses are currently on; but many believe, a settlement is unlikely to be reached anytime soon.

Impact of strike

Escondida is world's largest supplier of custom concentrate with a diverse customer base in Asia and Europe.

Although no smelters are solely dependent on deliveries from Escondida, the shortage of concentrates globally means that it will be difficult to fill gaps for long out of plant stocks or alternative sources of supply.

The knock-on impact on refined metals production is likely to be fairly swift, opined analysts.

For instance, a month long strike with operations at 60 per cent of normal capacity would result in around 30,000 tonnes of lost copper in concentrates output.

Although this may seem small in the global context, the combination of other conditions cannot be overlooked. LME refined copper stocks are just 1,05,000 tonnes.

Both the global concentrates and metals market balances are in deficit. Therefore, even a relatively small amount of lost output may have disproportionately large impact.

Market's response

Surprisingly, the copper market's response to strike at Escondida has so far been muted. The market perhaps is implicitly assuming a quick end to the strike.

"However, the odds seem to favour an extended stoppage", cautioned an analyst closely tracking these developments.

The Fed rate hike pause and dovish comments at FOMC meeting may have brought some relief from an imminent price spike.

The impact of lost production on global copper market is exacerbated by the current tightness in the copper concentrate market that has been consistently deficit so far this year and was projected to remain so, even without Escondida problems.