Copper: The Rally Continues As Supply Disruptions Worsen
Copper prices surged higher yet again this week hitting their highest levels since 2014 as supply factors and USD weakness contributed to increased demand for the red metal. Midweek, Freeport McMoRan reported that flash floods at their Grasberg site in Indonesia had wrecked roads, bridges, and water lines – sadly, one worker has also been reported missing. The group has yet to quantify the impact on operations, but a spokesperson for the group stated that it is likely that the main processing mill will have been affected. The Grasberg site has been a continual problem for the group with a four-month strike extending there as well as the group’s renewal of its temporary exporting license coming due in October.
Alongside the supply disruptions in Indonesia, Zambia, the top African copper producer, reported reduced power supply to sites operated by Glencore and First Quantum Minerals, linked to a pricing dispute. Glencore’s site at Mopani has been taken completely offline while the impact on FQM appears limited so far. Supply disruptions have plagued copper producers this year and last month, Chile’s Antofagasta only just avoided a worker’s strike at the Zaldivar and Centinela sites. The market is cautious about the potential for strikes in Chile as the nation is responsible for producing around 30% of the global copper supply.
In addition to supply disruption, the weakened US Dollar has also been providing a boost for the red metal as the minutes of the latest FOMC meeting highlighted the Fed’s concern about the inflation outlook and further weighed on market’s expectations of a further rate rise this year.
Given the current backdrop, investors have been quickly building their long exposure. The latest CFTC data shows that hedge funds’ long positions reached record highs last week with capital managers now long over 112,000 lots (roughly 2.8bln pounds). Copper is now up around 18% on the year and looks set to continue higher.
Read more: https://www.orbex.com/blog/2017/08/weekly-commodities-wrap-copper-hits-highest-level-since-2014