More comments on Copper – Balancing fundamentals and technicals
Paul W made some great comments on the market wrap yesterday when I focused on copper. He pointed out that one of the largest copper deposits in Indonesia is again having some political issues and this needs to be considered when looking at the sector. I address this in terms of how I balance certain potential mine shutdowns with what the charts are telling us.
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Thanks Cory. I have said it before but you guys run a great site. It is great that we can have these discussions.
Anyway, back to copper.
FWIW, the Grasberg mine actually did shut down for 12 weeks. There was a big spike in the copper price in January when the export halt was announced and then another big spike in copper in Feb when Freeport started sending it’s workers home. The announcements coming out of Freeport correlate almost perfectly with the spikes in the copper and copper went from around $2.50 to $2.80 which was significant. The Grasberg mine was later allowed to start up again under a temporary export permit. As you point out, this is under review and nothing is certain.
I hate to beat a dead horse but as this shows, if you are only looking at the charts, you can really miss an important catalyst. If you look at the discussion on the KE Report when this happened, the move in copper was discussed as a global growth move and as bullish for the economy. It could be argued that this move in copper actually meant very little about the economy. Dr Copper had lost his PHD and was sitting at the back of the class wearing a dunce cap.
I have found that Dave Forest from Pierce Points has been a great source for helping me to keep track of these geo-political events. He has a free newsletter….very worthwhile.
A clarification….by shut down, I mean shut down exports.
Key dates.. interesting to compare to copper chart. I realize that some of these moves are due to the markets, growth predictions and sentiment. It is the big moves or spikes I am interested in and whether they correspond to news events.
http://stockcharts.com/h-sc/ui?s=$COPPER
Early Jan. Freeport in talks with govt. Copper rising. Rumors of solution on Jan 10th. Talks fail and export ban takes effect on Jan 12th.
Copper spikes from about $2.50 to about $2.70 and then bounces around.
Freeport starts sending workers home on Feb 9th with a complete halt of mining on Feb 16th.
Copper goes to over $2.80
More talks of strikes and negotiation with possible solutions. Copper slowly come down from the earlier spike higher. Mike Pence goes to Indonesia and an agreement is reached to allow 1.1 million tonnes of copper to be exported over one year on April 21. This should make copper go lower but as this is happening a major strike occurs in Peru (Southern Copper). Peru strike resolves on April 24th but Freeport announces it may suspend it’s underground expansion plans. Copper grinds higher with help from commodity complex and the French election results.
May 3rd. Gina Lopez in Philippines is not re-instated as Natural Resources minister so open pit mines in Philippines may no longer get shut down. This coincides with news also of rising copper inventories with rising dollar. Nickel and Copper both crash with biggest down move in 20 months.
The most substantial commodity being moved by mine closures in the marketplace is Zinc, and it took years for the mine closures and supply destruction to finally underpin prices. However, that is why Zinc has really taken off over the last year, and can be a fundamental tailwind for a commodity.
I follow about 190 Copper Stocks, so there is too much Copper for the 2 mines Paul W mentioned to have any real effect. There is NO shortage of Copper in the world or new mines coming on-line. Dr Copper will be murky for the medium term, although I see no reason that Copper can get back up in the $3-$4 range in 2019.
It wasn’t two mines. It was two countries and they are both major producers. In Philippines, Lopez suspended the licenses of more than half their mines and said there would be a ban on all new open pit mines and licenses. The rhetoric was incredible and absolutely affected the copper and nickel prices.
http://www.reuters.com/article/us-philippines-mining-duterte-idUSKBN16K0W0
I found this interesting Cory.
Copper, iron ore, etc, is all China dependent now IMPO. What the Chinese do will decide where the prices go. We all know this.