Copper faces faux bullish fundamentals

Copper prices were range-bound during May, despite a number of potentially bullish developments (Chart 1).

First, there was a tragic mining accident in Indonesia. On May 14, 28 workers perished when a tunnel collapsed at Freeport McMoran’s Grasberg mine. The government forced the company to suspend operations pending an investigation to determine the cause of the accident and to institute measures that would prevent a repeat of the calamity.

In and of itself, the amount of copper lost to world trade was not overwhelming. The mine supplies about 0.05% of global output. The initial reaction was muted, but the market rallied back to the high of the range in the week following the accident. It is estimated that the mine will be out of service for three months.

The traditional nemesis of Chilean production, labor unrest, reared its head and had a far more significant effect on global supplies. After a stellar first quarter in which Chilean production rose by 6.6%, year-over-year, it seemed as though estimates for 2013 output, which called for growth of about 3%, would have to be revised. Strikes, however, created a setback, with the most recent data showing April output down 1.2% over last year.

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